The Income Tax Act, 2025 No. 30 of 2025

REGISTERED NO. DL—(N)04/0007/2003—25 EXTRAORDINARY PART II — Section 1 PUBLISHED BY AUTHORITY No. 35] NEW DELHI, THURSDAY, AUGUST 21, 2025/SHRAVANA 30, 1947 (Saka) Separate paging is given to this Part in order that it may be filed as a separate compilation. CG-DL-E-22082025-265620 MINISTRY OF LAW AND JUSTICE (Legislative Department) New Delhi, the 21st August, 2025/Shravana 30, 1947 (Saka) The following Act of Parliament received the assent of the President on the 21st August, 2025 and is hereby published for general information:— THE INCOME-TAX ACT, 2025 No. 30 of 2025 [21st August, 2025.] An Act to consolidate and amend the law relating to income-tax. Be it enacted by Parliament in the Seventy-sixth Year of the Republic of India as follows:— CHAPTER I PRELIMINARY 1. (1) This Act may be called the Income-tax Act, 2025. (2) It extends to the whole of India. (3) Save as otherwise provided in this Act, it shall come into force on the 1st April, 2026. Short title, extent and commencement. Definitions. 2. In this Act, unless the context otherwise requires,— (1) “accountant” shall have the meaning assigned to it in section 515(3)(b); (2) “Additional Commissioner” means a person appointed to be an Additional Commissioner of Income-tax under section 237(1); (3) “Additional Director” means a person appointed to be an Additional Director of Income-tax under section 237(1); (4) “advance tax” means the advance tax payable as per Chapter XIX-C; (5) “agricultural income” means— (a) any rent or revenue derived from a land which is situated in India and is used for agricultural purposes; (b) any income derived from such land by— (i) agriculture; or (ii) the performance by a cultivator or receiver of rent-in-kind of any process ordinarily employed by a cultivator or receiver of rent-in-kind to render the produce raised or received by him fit to be taken to market; or (iii) the sale by a cultivator or receiver of rent-in-kind of the produce raised or received by him, in respect of which no process has been performed other than a process of the nature described in item (ii); (c) any income derived from any building owned and occupied by the receiver of the rent or revenue of any such land, or occupied by the cultivator or the receiver of rent-in-kind, of any such land with respect to which, or the produce of which, any process mentioned in sub-clause (b)(ii) and (iii) is carried on, where such building–– (i) is on or in the immediate vicinity of such land and that land is assessed to land revenue in India, or is subject to a local rate assessed and collected by officers of the Government as such, or where the land is not so assessed to land revenue or subject to a local rate it is not situated in any area as specified in clause (22)(iii)(A) or (B); and (ii) is required as a dwelling house, or as a store-house, or other out-building, by the receiver of the rent or revenue or the cultivator, or the receiver of rent-in-kind, by reason of his connection with the land; (d) any income derived from saplings or seedlings grown in a nursery, but shall not include–– (i) the income derived from any building or land referred to in sub-clause (c) arising from the use of such building or land for any purpose (including letting for residential purpose or for the purpose of any business or profession) other than agriculture falling under sub-clause (a) or (b); or (ii) any income arising from the transfer of any land referred to in clause (22)(iii)(A) or (B); (6) “amalgamation”, in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of such merger being referred to as the amalgamated company) in such a manner that— (a) all the property of the amalgamating company or companies immediately before the amalgamation become the property of the amalgamated company by virtue of the amalgamation; (b) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (c) the shareholders holding not less than three-fourths in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company after the winding up of the first-mentioned company; (7) “annual value”, in relation to any property, means its annual value as determined under section 21; (8) “Appellate Tribunal” means the Appellate Tribunal constituted under section 361; (9) “approved gratuity fund” means a gratuity fund, which is approved and continues to be approved by the approving authority as per Part B of Schedule XI; (10) “approved superannuation fund” means a superannuation fund or any part of a superannuation fund, which is approved and continues to be approved by the approving authority as per Part B of Schedule XI; (11) “assessee” means a person by whom any tax or any other sum of money is payable under this Act, and includes–– (a) every person in respect of whom any proceeding under this Act has been taken–– (i) for the assessment of his income or of the loss sustained by him or refund due to him; or (ii) for the assessment of the income of any other person in respect of which he is assessable, or of the loss sustained by such other person or refund due to such other person; (b) every person who is deemed to be an assessee under this Act; (c) every person who is deemed to be an assessee in default under this Act; (12) “Assessing Officer” means— (a) the Assistant Commissioner or Deputy Commissioner or Assistant Director or Deputy Director or the Income-tax Officer, who is vested with the relevant jurisdiction by virtue of directions or orders issued under section 241(1) or (2) or (3), or any other provision of this Act; and (b) the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director, who is directed under section 241(5)(b) to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act; (13) “assessment” includes reassessment and recomputation; (14) “Assistant Commissioner” means a person appointed to be an Assistant Commissioner of Income-tax or a Deputy Commissioner of Income-tax under section 237(1); (15) “Assistant Director” means a person appointed to be an Assistant Director of Income-tax or a Deputy Director of Income-tax under section 237(1); (16) “average rate of income-tax” means the rate arrived at by dividing the amount of income-tax calculated on the total income, by such total income; (17) “block of assets” means a group of assets falling within a class of assets comprising of— (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession, in respect of which the same percentage of depreciation is prescribed; (18) “Board” means the Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963; (19) “books or books of account” includes ledgers, day-books, cash books, account-books and other books, whether kept–– (a) in written form; or (b) in electronic or any digital form, or on cloud based storage, or on any electromagnetic data storage device, such as floppy, disc, tape, portable data storage device, external hard drives, or memory cards; or (c) as print-outs of data stored in electronic or digital form or on storage devices mentioned in sub-clause (b); (20) “business” includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture; 54 of 1963. (21) “business trust” means a trust registered as— (a) an Infrastructure Investment Trust under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014 made under the Securities and Exchange Board of India Act, 1992; or (b) a Real Estate Investment Trust under the Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014, made under the Securities and Exchange Board of India Act, 1992; (22) “capital asset” means— (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by— (i) a Foreign Institution Investor which has invested in such securities in accordance with the regulations made under the Securities and Exchange Board of India Act, 1992; or (ii) an investment fund specified in section 224(10)(a) which has invested such securities in accordance with the provisions of the regulations made under the Securities and Exchange Board of India Act, 1992 or under the International Financial Services Centers Authority Act, 2019; (c) any unit linked insurance policy to which exemption under Schedule II (Table: Sl. No. 2) does not apply, but does not include— (i) any stock-in-trade, other than the securities referred to in sub-clause (b), consumable stores or raw materials held for business or profession; (ii) personal effects; (iii) agricultural land in India, not being a land situated–– (A) in any area comprised within the jurisdiction of a municipality (whether known as a municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name) or a cantonment board and which has a population of not less than ten thousand; or (B) in any area within the distance as specified in column C of the following Table, measured aerially from the local limits of any municipality or cantonment board referred to in item (A) and having population as referred to in column B of the said Table:— Table Sl. No. Population of municipality or cantonment board Within distance, measured aerially, from local limits of any municipality or cantonment board not being more than A B C 1. More than 10000 and upto 100000. Two kilometres. 15 of 1992. 15 of 1992. 15 of 1992. 15 of 1992. 50 of 2019. A B C 2. More than 100000 and upto 1000000. Six kilometres. 3. More than 1000000. Eight kilometres; (iv) Gold Deposit Bonds issued under the Gold Deposit Scheme, 1999 or deposit certificates issued under the Gold Monetisation Scheme, 2015 as may be notified by the Central Government, where,–– (A) “Foreign Institutional Investor” shall have the meaning assigned to it in section 210(6)(a); (B) “personal effects” means any movable property (including wearing apparel and furniture) held for personal use by the assessee or any family member dependent on him, but excludes–– (I) jewellery, which includes–– (a) ornaments made of gold, silver, platinum, or any other precious metal or any alloy of such precious metals, with or without precious or semi-precious stones, and whether or not worked or sewn into any wearing apparel; or (b) precious or semi-precious stones, whether or not set in any furniture, utensil or other article or worked or sewn into any wearing apparel; or (II) archaeological collections; or (III) drawings; or (IV) paintings; or (V) sculptures; or (VI) any work of art; (C) “population” shall mean the population according to the last preceding census of which the relevant figures have been published before the first day of the tax year; (D) “property” includes any rights in or in relation to an Indian company, including rights of management or control or any other rights; and (E) “securities” shall have the same meaning as assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956; (23) “charitable purpose” includes–– (a) relief of the poor; (b) education; (c) yoga; (d) medical relief; (e) preservation of environment (including watersheds, forests and wildlife); (f) preservation of monuments or places or objects of artistic or historic interest; 42 of 1956. (g) the advancement of any other object of general public utility; (24) “Chief Commissioner” means a person appointed to be a Chief Commissioner of Income-tax or a Director General of Income-tax or a Principal Chief Commissioner of Income-tax or a Principal Director General of Income-tax under section 237(1); (25) “child”, in relation to an individual, includes a step-child and an adopted child of that individual; (26) “Commissioner” means a person appointed to be a Commissioner of Income-tax or a Director of Income-tax or a Principal Commissioner of Income-tax or a Principal Director of Income-tax under section 237(1); (27) “Commissioner (Appeals)” means a person appointed to be a Commissioner of Income-tax (Appeals) under section 237(1); (28) “company” means— (a) any Indian company; or (b) any body corporate incorporated by or under the laws of a country outside India; or (c) any institution, association or body which is or was assessable or was assessed as a company under the Income-tax Act, 1961, as it stood immediately before its repeal by this Act (herein referred to as the Income-tax Act, 1961); or (d) any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by order of the Board to be a company for such period as specified in such declaration; (29) “company in which the public are substantially interested” means— (a) a company owned by the Government or the Reserve Bank of India or in which at least 40% of the shares of the company are held (individually or collectively) by the Government or the Reserve Bank of India or a corporation owned by that bank; or (b) a company which is registered under section 8 of the Companies Act, 2013; or (c) a company having no share capital and if, having regard to its objects, the nature and composition of its membership and other relevant considerations, the Board by order declares it to be such a company for the period as specified in the declaration; or (d) a mutual benefit finance company, that is to say, a company which carries on, as its principal business, the business of acceptance of deposits from its members and which is declared by the Central Government under section 406 of the Companies Act, 2013, to be a Nidhi or Mutual Benefit Society; or (e) a company, wherein shares (excluding those entitled to a fixed rate of dividend, with or without a further right to participate in profits) carrying not less than 50% of the voting power, have been unconditionally, allotted to or acquired by, and were beneficially held throughout the relevant tax year by, one or more co-operative societies; or 43 of 1961. 18 of 2013. 18 of 2013. (f) a company which is not a private company as defined in the Companies Act, 2013, and either of the following conditions is fulfilled:— (i) shares in the company (not being shares entitled to a fixed rate of dividend, with or without a further right to participate in profits) were, as on the last day of the relevant tax year, listed in a recognised stock exchange in India as per the Securities Contracts (Regulation) Act, 1956 and any rules made thereunder; (ii) shares in the company (not being those entitled to a fixed rate of dividend, with or without a further right to participate in profits) carrying not less than 50% of the voting power, have been unconditionally, allotted to or acquired by, and were beneficially held throughout the relevant tax year by–– (A) the Government; or (B) a corporation established by a Central Act or State Act or Provincial Act; or (C) any company to which this clause applies or any subsidiary company of such company, if the entire share capital of such subsidiary company has been held by the parent company or by its nominees throughout the tax year, so, however, that in respect of an Indian company whose business consists mainly in the construction of ships or in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power, the expression “not less than 50%” shall be read as if the expression “not less than 40%” had been substituted; (30) “convertible foreign exchange” means foreign exchange which is treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999, and any rules made thereunder or any other corresponding law; (31) “co-operative bank” shall have the same meaning as specified in Part V of the Banking Regulation Act, 1949; (32) “co-operative society” means a co-operative society registered under the Co-operative Societies Act, 1912, or under any other law in force in any State or Union territory for the registration of co-operative societies; (33) “currency” shall have the same meaning as assigned to it in section 2(h) of the Foreign Exchange Management Act, 1999; (34) “demerged company” means the company whose undertaking is transferred, pursuant to a demerger, to a resulting company; (35) “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 230 to 232 of the Companies Act, 2013, by a demerged company of its one or more undertakings to any resulting company in such a manner that— 18 of 2013. 42 of 1956. 42 of 1999. 10 of 1949. 2 of 1912. 42 of 1999. 18 of 2013. (a) all the property of the undertaking, being transferred by the demerged company, immediately before the demerger, becomes the property of the resulting company by virtue of the demerger; (b) all the liabilities relatable to the undertaking, being transferred by the demerged company, immediately before the demerger, become the liabilities of the resulting company by virtue of the demerger; (c) the property and the liabilities of the undertaking or undertakings being transferred by the demerged company are transferred at values appearing in its books of account immediately before the demerger, except in compliance to the Indian Accounting Standards specified in Annexure to the Companies (Indian Accounting Standards) Rules, 2015 made under the Companies Act, 2013; (d) the resulting company issues, in consideration of the demerger, its shares to the shareholders of the demerged company on a proportionate basis, except where the resulting company itself is a shareholder of the demerged company; (e) the shareholders holding not less than three-fourths in value of the shares in the demerged company (other than shares already held therein immediately before the demerger, or by a nominee for, the resulting company or, its subsidiary) become shareholders of the resulting company or companies by virtue of the demerger, otherwise than as a result of the acquisition of the property or assets of the demerged company or any undertaking thereof by the resulting company; (f) the transfer of the undertaking is on a going concern basis; and (g) the demerger is as per the conditions, if any, notified under section 116(7) by the Central Government, where,–– (i) “undertaking” shall include any part of an undertaking, or a unit or division of an undertaking or a business activity taken as a whole, but does not include individual assets or liabilities or any combination thereof not constituting a business activity; (ii) “liabilities relatable to the undertaking”, referred to in sub-clause (b), shall include— (A) the liabilities which arise out of the activities or operations of the undertaking; (B) the specific loans or borrowings (including debentures) raised, incurred and utilised solely for the activities or operations of the undertaking; and (C) the amount “N”, being the amount of general or multipurpose borrowings of the undertaking, as computed below, in cases other than those referred to in item (A) or (B),–– N = K x (L/M) where,–– K = the amount of general or multipurpose borrowings of the demerged company; 18 of 2013. L = the value of the assets transferred in a demerger; and M = the total value of the assets of such demerged company immediately before the demerger; (iii) any change in the value of assets consequent to their revaluation shall be ignored for determining the value of the property referred to in sub clause (c); (iv) the splitting up or the reconstruction of any authority or a body constituted or established under a Central Act or State Act or Provincial Act, or a local authority or a public sector company, into separate authorities or bodies or local authorities or companies, as the case may be, shall be deemed to be a demerger if it fulfils such conditions as the Central Government may, by notification, specify; (v) the reconstruction or splitting up of a company, which ceased to be a public sector company as a result of transfer of its shares by the Central Government, into separate companies, shall be deemed to be a demerger, if it has been made to give effect to any condition attached to the said transfer of shares and also fulfils such other conditions as the Central Government may, by notification, specify; (vi) the reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if it has been made to transfer any asset of the demerged company to the resulting company and the resulting company— (A) is a public sector company on the appointed day indicated in such scheme approved by the Central Government or any other body authorised under the Companies Act, 2013 or any other applicable law governing such public sector companies; and (B) fulfils such other conditions as the Central Government may, by notification, specify in this behalf; (36) “Deputy Commissioner” means a person appointed to be a Deputy Commissioner of Income-tax under section 237(1); (37) “Deputy Director” means a person appointed to be a Deputy Director of Income-tax under section 237(1); (38) “director” and “manager”, in relation to a company, shall have the same meanings as respectively assigned to them in section 2(34) and (53) of the Companies Act, 2013; (39) “Director General or Director” means a person appointed to be a Director General of Income-tax or a Director of Income-tax, under section 237(1), and includes a Principal Director General or a Principal Director or an Additional Director or a Joint Director or a Deputy Director or an Assistant Director; (40) “dividend” includes— (a) any distribution by a company of accumulated profits, whether capitalised or not, if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company; 18 of 2013. 18 of 2013. (b) any distribution to its shareholders by a company of debentures, debenture-stock, or deposit certificates in any form, with or without interest, and any distribution to its preference shareholders of shares by way of bonus, to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not; (d) any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated profits, whether capitalised or not; (e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise),–– (i) as an advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend, with or without a further right to participate in profits) holding not less than 10% of the voting power; or (ii) as an advance or loan to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (herein referred to as the said concern); or (iii) made on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits; (f) any payment by a company on purchase of its own shares from a shareholder as per section 68 of the Companies Act, 2013, but does not include— (i) a distribution made under sub-clause (c) or (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ii) any advance or loan made to a shareholder or the said concern by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off; (iv) any distribution of shares pursuant to a demerger by the resulting company to the shareholders of the demerged company (whether or not there is a reduction of capital in the demerged company); (v) any advance or loan between two group entities, where,–– (A) one of the group entity is a “Finance Company” or a “Finance Unit”; and 18 of 2013. (B) the parent entity or principal entity of such group is listed on stock exchange in a country or territory outside India other than the country or territory outside India as specified by the Board in this behalf, where,–– (A) “accumulated profits” for the purposes of–– (I) sub-clauses (a), (b), (d) and (e), shall include all profits of the company up to the date of distribution or payment referred to in those sub clauses; (II) sub-clause (c), shall include all profits of the company up to the date of liquidation, but shall not, where the liquidation is consequent on the compulsory acquisition of its undertaking by the Government or a corporation owned or controlled by the Government under any law in force, include any profits of the company before three successive tax years immediately preceding the tax year in which such acquisition took place; (B) in respect of an amalgamated company, the accumulated profits, whether capitalised or not, or loss, as the case may be, shall be increased by the accumulated profits, whether capitalised or not, of the amalgamating company on the date of amalgamation; (C) “concern” means a Hindu undivided family or a firm or an association of persons or a body of individuals or a company; (D) a person shall be deemed to have a substantial interest in a concern, other than a company, if he is, at any time during the tax year, beneficially entitled to not less than 20% of the income of such concern; (E) for the purposes of sub-clause (v),— (I) “Finance Company” and “Finance Unit” shall have the same meaning as respectively assigned to them in regulation 2(1)(e) and (f) of the International Financial Services Centres Authority (Finance Company) Regulations, 2021 made under the International Financial Services Centres Authority Act, 2019, and is set up as a global or regional corporate treasury centre for undertaking treasury activities or treasury services as per the relevant regulations made by the International Financial Services Centres Authority established under section 4 of the said Act; (II) “group entity”, “parent entity” and “principal entity” shall be such entities which satisfy such conditions as may be prescribed in this behalf; (41) “document” includes an electronic record as defined in section 2(1)(t) of the Information Technology Act, 2000; (42) “domestic company” means— (i) an Indian company; or (ii) any other company which has made the prescribed arrangements within India for the declaration and payment of the dividends (including dividends on preference shares) payable out of its income liable to tax under this Act; 50 of 2019. 21 of 2000. (43) “electoral trust” means a trust so approved by the Board as per the scheme made by the Central Government; (44) “fair market value”, in relation to a capital asset, means— (a) the price that the capital asset would ordinarily fetch on sale in the open market on the relevant date; and (b) where the price referred to in sub-clause (a) is not ascertainable, such price as determined in the manner, as may be prescribed; (45) “firm” shall have the same meaning as assigned to it in section 4 of the Indian Partnership Act, 1932, and shall include a “limited liability partnership” as defined in section 2(1)(n) of the Limited Liability Partnership Act, 2008; (46) “foreign company” means a company which is not a domestic company; (47) “foreign currency” shall have the same meaning as assigned to it in section 2(m) of the Foreign Exchange Management Act, 1999; (48) “hearing” includes communication of data and documents through electronic mode; (49) “income” includes— (a) profits and gains; (b) dividend; (c) voluntary contributions received by–– (i) a registered non-profit organisation; or (ii) an association referred to in Schedule III (Table: Sl. No. 23); or (iii) any University or other educational institution or any hospital or other institution referred to in Schedule VII (Table: Sl. No. 19); or (iv) an electoral trust; (d) the value of any perquisite or profit in lieu of salary taxable under sections 17 and 18; (e) any special allowance or benefit, other than perquisite included under sub-clause (d), specifically granted to the assessee to meet expenses wholly, necessarily and exclusively for the performance of the duties of an office or employment of profit; (f) any allowance granted to the assessee either to meet his personal expenses at the place where the duties of his office or employment of profit are ordinarily performed by him or at a place where he ordinarily resides or to compensate him for the increased cost of living; (g) the value of any benefit or perquisite, whether convertible into money or not, obtained from a company, either by a director or by a person who has a substantial interest in the company, or by a relative of the director or such person, and any sum paid by any such company in respect of any obligation which, but for such payment, would have been payable by the director or that person; 9 of 1932. 6 of 2009. 42 of 1999. (h) the value of any benefit or perquisite, whether convertible into money or not, obtained by any representative assessee mentioned in section 303(1)(c) or (d) or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being herein referred to as the beneficiary), and any sum paid by the representative assessee in respect of any obligation which, but for such payment, would have been payable by the beneficiary; (i) any sum chargeable to income-tax under— (A) section 26(2)(b) or (c) or (d) or section 38 or 95; (B) section 26(2)(e) or (g); (j) the value of any benefit or perquisite taxable under section 26(2)(f); (k) any capital gains chargeable under section 67; (l) the profits and gains of any business of insurance carried on by a mutual insurance company or by a co-operative society, computed as per section 55 or any surplus taken to be such profits and gains as per Schedule XIV; (m) the profits and gains of any business of banking (including providing credit facilities) carried on by a co-operative society with its members; (n) any winnings from lotteries, crossword puzzles, races including horse races, card games and other games of any sort or from gambling or betting of any form or nature; (o) any sum received by the assessee from his employees as contributions to any provident fund or superannuation fund or any fund set up under the provisions of the Employees’ State Insurance Act, 1948, or any other fund for the welfare of such employees; (p) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy; (q) any sum referred to in section 26(2)(h); (r) the fair market value of inventory referred to in section 26(2)(j); (s) any sum referred to in section 92(2)(k) or (l); (t) any sum of money referred to in section 92(2)(h); (u) any sum of money or value of property referred to in section 92(2)(m); (v) any compensation or other payment referred to in section 92(2)(j); (w) assistance in the form of a subsidy or grant or cash incentive or duty drawback or waiver or concession or reimbursement (by whatever name called) by the Central Government or a State Government or any authority or body or agency, in cash or kind, to the assessee other than— (i) the subsidy or grant or reimbursement which is taken into account for determination of the actual cost of the asset as per section 39(1)(d) and (3); or 34 of 1948. (ii) the subsidy or grant by the Central Government for the purpose of the corpus of a trust or institution established by the Central Government or a State Government, where,–– (A) “card game and other game of any sort” includes any game show, an entertainment programme on television or electronic mode, in which people compete to win prizes or any other similar game; (B) “Keyman insurance policy” shall have the meaning assigned to it in Schedule II (Note 1); (C) “lottery” includes winnings from prizes awarded to any person by draw of lots or by chance or in any other manner, under any scheme or arrangement, called by any name; (50) “Income Computation and Disclosure Standards” means such standards as may be notified under section 276(2); (51) “Income-tax Officer” means a person appointed to be an Income-tax Officer under section 237(1); (52) “India” means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and Other Maritime Zones Act, 1976, and the air space above its territory and territorial waters; (53) “Indian company” means a company formed and registered under the Companies Act, 2013 and includes–– (a) company formed and registered under any law relating to companies formerly or currently in force in any part of India; or (b) corporation established by or under a Central Act or State Act or Provincial Act; or (c) institution or association or body which is declared by the Board to be a company under clause (28), the registered or principal office of which is in India; (54) “Indian currency” shall have the same meaning as assigned to it in section 2(q) of the Foreign Exchange Management Act, 1999; (55) “infrastructure capital company” means a company which makes investments by acquiring shares or providing long-term finance to–– (a) any enterprise or undertaking wholly engaged in the business referred to in section 80-IA(4) or 80-IAB(1) of the Income-tax Act, 1961; or (b) an undertaking developing and building–– (i) a housing project referred to in section 80-IB(10) of the Income-tax Act, 1961; or (ii) a project for constructing a hotel of not less than three star category as classified by the Central Government; or (iii) a project for constructing a hospital with at least one hundred beds for patients; 80 of 1976. 18 of 2013. 42 of 1999. 43 of 1961. 43 of 1961. (56) “infrastructure capital fund” means a fund operating under a trust deed registered under the Registration Act, 1908 established to raise moneys by the trustees for investment by acquiring shares or providing long-term finance to enterprises or undertakings referred to in clause (55); (57) “Inspector of Income-tax” means a person appointed to be an Inspector of Income-tax under section 237(1); (58) “insurer” means an insurer, being an Indian insurance company, as defined under section 2(7A) of the Insurance Act, 1938, which has been granted a certificate of registration under section 3 of that Act; (59) “interest” means interest payable in any manner for moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes service fee or any other charges for the moneys borrowed or debt incurred or for any credit facility that has not been utilised; (60) “interest on securities” means— (a) interest on any security of the Central Government or a State Government; (b) interest on debentures or other securities for money issued by or on behalf of a local authority or a company or a corporation established by a Central Act or State Act or Provincial Act; (61) “International Financial Services Centre” shall have the same meaning as assigned to it in section 2(q) of the Special Economic Zones Act, 2005; (62) “Joint Commissioner” means a person appointed to be a Joint Commissioner of Income-tax or an Additional Commissioner of Income-tax under section 237(1); (63) “Joint Commissioner (Appeals)” means a person appointed to be a Joint Commissioner of Income-tax (Appeals) or an Additional Commissioner of Income-tax (Appeals) under section 237(1); (64) “Joint Director” means a person appointed to be a Joint Director of Income-tax or an Additional Director of Income-tax under section 237(1); (65) “legal representative” shall have the same meaning as assigned to it in section 2(11) of the Code of Civil Procedure,1908; (66) “liable to tax”, in relation to a person and with reference to a country, means that there is an income-tax liability on such person under the law of that country for the time being in force and shall include a person who has subsequently been exempted from such liability under the law of that country; (67) “long-term capital asset” means a capital asset which is not a short-term capital asset; (68) “long-term capital gain” means capital gains arising from the transfer of a long-term capital asset; (69) “manufacture”, with its grammatical variations and cognate expressions, means a change in a non-living physical object or article or thing— 16 of 1908. 4 of 1938. 28 of 2005. 5 of 1908. (a) resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; (70) “maximum marginal rate” means the rate of income-tax (including surcharge on income-tax) applicable in relation to the highest slab of income for an individual, association of persons or, as the case may be, body of individuals, as specified in the Finance Act of the relevant year; (71) “non-banking financial company” shall have the same meaning as assigned to it in section 45-I(f) of the Reserve Bank of India Act, 1934; (72) “non-resident” means a person who is not a “resident”, and for the purposes of sections 161, 174 and 312, includes a person who is not ordinarily resident as per section 6(13); (73) “notification” means a notification published in the Official Gazette and the expression “notify” with its grammatical variations and cognate expressions shall be construed accordingly; (74) “partner” shall have the same meaning as assigned to it in section 4 of the Indian Partnership Act, 1932, and shall include— (a) any person who, being a minor, has been admitted to the benefits of partnership; and (b) a partner of a limited liability partnership as defined in section 2(1)(q) of the Limited Liability Partnership Act, 2008; (75) “partnership” shall have the same meaning as assigned to it in section 4 of the Indian Partnership Act, 1932, and shall include a “limited liability partnership” as defined in section 2(1)(n) of the Limited Liability Partnership Act, 2008; (76) “Permanent Account Number (PAN)” means a unique number consisting of ten alphanumeric characters, allotted by the Assessing Officer to a person for the purpose of identification under this Act, and includes a Permanent Account Number allotted under the new series; (77) “person” includes— (a) an individual; (b) a Hindu undivided family; (c) a company; (d) a firm; (e) an association of persons or a body of individuals, whether incorporated or not; (f) a local authority; and (g) every artificial juridical person, not falling within any of the preceding sub-clauses, whether or not such an association of persons or a body of individuals or a local authority or an artificial juridical person was formed or established or incorporated with the object of deriving income, profits, or gains; 2 of 1934. 9 of 1932. 6 of 2009. 9 of 1932. 6 of 2009. (78) “person of Indian origin” means an individual who or either of his parents or any of his grand-parents, was born in undivided India; (79) “person who has a substantial interest in the company”, in relation to a company means a person who is the beneficial owner of shares, not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in profits, carrying not less than 20% of the voting power; (80) “prescribed” means prescribed by rules made under this Act; (81) “Principal Chief Commissioner” means a person appointed to be a Principal Chief Commissioner of Income-tax under section 237(1); (82) “Principal Commissioner” means a person appointed to be a Principal Commissioner of Income-tax under section 237(1); (83) “Principal Director” means a person appointed to be a Principal Director of Income-tax under section 237(1); (84) “Principal Director General” means a person appointed to be a Principal Director General of Income-tax under section 237(1); (85) “principal officer”, with reference to a local authority or a company or any other public body or any association of persons or any body of individuals, means— (a) the secretary, treasurer, manager or agent of the authority, company, association or body; or (b) any person connected with the management or administration of the local authority, company, association or body upon whom the Assessing Officer has served a notice of his intention of treating him as the principal officer thereof; (86) “profession” includes vocation; (87) “public sector bank” means the State Bank of India constituted under the State Bank of India Act, 1955, a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 and a bank included in the category “other public sector banks” by the Reserve Bank of India; (88) “public sector company” means any corporation established by or under any Central Act or State Act or Provincial Act or a Government company as defined in section 2(45) of the Companies Act, 2013; (89) “public servant” shall have the same meaning as assigned to it in section 2(28) of the Bharatiya Nyaya Sanhita, 2023; (90) “rate or rates in force” or “rates in force”, in relation to a tax year, for the purposes of–– (a)(i) computing the income-tax chargeable under section 316(5) or 317(2) or 319 or 320(2); or (ii) deducting income-tax under section 392(1) to (6) from income chargeable under the head “Salaries”; or 23 of 1955. 5 of 1970. 40 of 1980. 18 of 2013. 45 of 2023. (iii) computing the advance tax payable under Chapter XIX-C in a case not falling under section 207 or 194(1) (Table: Sl. No. 1) or 194(1)(Table: Sl. No. 6) or 214 or 307 or 308 or 311; or (iv) deducting tax under section 393(1) [Table: Sl. No. 1(i)], [Table: Sl. No. 5(i)], [Table: Sl. No. 5(ii)], [Table: Sl. No. 5(iii)] and (Table: Sl. No. 7) or in section 393(3)(Table: Sl. No. 1), (Table: Sl. No. 2) and (Table: Sl. No. 3), means the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year; (b) computing the advance tax payable under Chapter XIX-C in a case falling under section 207 or 194(1) (Table: Sl. No. 1) or 194(1) (Table: Sl. No. 6) or 214 or 307 or 308 or 311 the rate or rates specified in the said respective section, or the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant tax year, whichever is applicable; (c) deducting tax under section 393(2) (Table: Sl. No. 6), (Table: Sl. No. 7), (Table: Sl. No. 8), (Table: Sl. No. 9) and (Table: Sl. No. 17), the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant tax year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 159(1), or an agreement notified by the Central Government under section 159(2), whichever is applicable; (91) “recognised provident fund” means a provident fund which has been and continues to be recognised by the approving authority as per Part A of the Schedule XI, and includes a provident fund established under a scheme framed under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; (92) “recognised stock exchange” means a recognised stock exchange as referred to in section 2(f) of the Securities Contracts (Regulation) Act, 1956 and which fulfils such conditions, as may be prescribed, and notified by the Central Government for this purpose; (93) “regular assessment” means the assessment made under section 270(10) or 271; (94) “relative”, in relation to an individual, means the husband, wife, brother, sister or any lineal ascendant (maternal as well as paternal) or descendant of that individual; (95) “Reserve Bank of India” means the Bank constituted under section 3(1) of the Reserve Bank of India Act, 1934; (96) “resident” means a person who is resident in India as per section 6; (97) “resulting company” means one or more companies (including a wholly owned subsidiary thereof) to which the undertaking of the demerged company is transferred in a demerger and, the resulting company in consideration of such transfer of undertaking, issues shares to the shareholders of the demerged company and includes any authority or body or local authority or public sector company or a company established, constituted or formed as a result of demerger; 19 of 1952. 42 of 1956. 2 of 1934. (98) “scheduled bank” shall have the same meaning as assigned to it in section 2(e) of the Reserve Bank of India Act, 1934; (99) “Securities and Exchange Board of India” shall have the same meaning as assigned to it in section 2(1)(a) of the Securities and Exchange Board of India Act, 1992; (100) “senior citizen” means an individual resident in India who is of the age of sixty years or more at any time during the relevant tax year; (101)(a) “short-term capital asset” means a capital asset held by an assessee for not more than twenty-four months immediately preceding the date of its transfer; and (b) where the capital asset is a–– (i) security listed in a recognised stock exchange in India; or (ii) unit of the Unit Trust of India; or (iii) unit of an equity-oriented fund; or (iv) zero-coupon bond, the provisions of sub-clause (a) shall have effect, as if for the words “twenty-four months”, the words “twelve months” had been substituted; and (c) in determining the period for which capital asset is held by the assessee,— (A) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation; (B) there shall be included the period for which–– (I) the asset was held by the previous owner referred to in section 73(1)(Table: Sl. No. 1), for a capital asset which becomes the property of the assessee in the circumstances mentioned in the said section; (II) the share or shares in the amalgamating company were held by the assessee, for a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a transfer referred to in section 70(1)(f); (III) the share or shares held in the demerged company were held by the assessee, for a capital asset being a share or shares in an Indian company, which becomes the property of the assessee in consideration of a demerger; (IV) the person was a member of a recognised stock exchange in India immediately before its demutualisation or corporatisation, for a capital asset, being trading or clearing rights of that recognised stock exchange, acquired by a person pursuant to such demutualisation or corporatisation of that recognised stock exchange; (V) the person was a member of a recognised stock exchange in India immediately before its demutualisation or corporatisation, for a capital asset being equity share or shares in a company allotted pursuant to such demutualisation or corporatisation of that recognised stock exchange; (VI) the share or shares were held by the assessee, for a capital asset being a unit of a business trust, allotted pursuant to transfer of share or shares as referred to in section 70(1)(zi); 2 of 1934. 15 of 1992. (VII) the unit or units in the consolidating scheme of a mutual fund were held by the assessee, for a capital asset being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in section 70(1)(zj); (VIII) the preference shares were held by the assessee, for a capital asset being equity shares in a company, which becomes the property of the assessee in consideration of a transfer referred to in section 70(1)(zb); (IX) the unit or units in the consolidating plan of a mutual fund scheme were held by the assessee, for a capital asset being a unit or units, which becomes the property of the assessee in consideration of a transfer referred to in section 70(1)(zk); (X) the original unit or units in the main portfolio were held by the assessee, for a capital asset being a unit or units in a segregated portfolio referred to in section 73(1) (Table: Sl. No. 11); (XI) gold was held by the assessee before conversion into the Electronic Gold Receipt, for a capital asset being Electronic Gold Receipt issued in respect of such gold deposited as referred to in section 70(1)(y); (XII) Electronic Gold Receipt was held by the assessee before its conversion into gold for a capital asset being gold released in respect of such Electronic Gold Receipt as referred to in section 70(1)(y); (C) there shall be reckoned, the period from–– (I) the date of its conversion or treatment, for a capital asset referred to in section 26(2)(j); (II) the date of allotment of a share or any other security (herein referred to as the financial asset), for a capital asset being such financial asset subscribed to by the assessee on the basis of his right to subscribe to such financial asset or subscribed to by the person in whose favour the assessee has renounced his right to subscribe to such financial asset; (III) the date of the offer of the right to subscribe to any financial asset which is renounced in favour of any other person by the company or institution, as the case may be, making such offer, for a capital asset, being such right; (IV) the date of the allotment of a financial asset allotted without any payment and on the basis of holding of any other financial asset, for a capital asset being such financial asset; (V) the date of allotment or transfer of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer free of cost or at concessional rate to his employees (including former employee or employees), for a capital asset being such specified security or sweat equity shares; (VI) the date on which a request for the redemption was made, for a capital asset, being share or shares of a company, which is acquired by the non-resident assessee on redemption of Global Depository Receipts referred to in section 209(1)(Table: Sl. No. 2) held by such assessee; (D) for capital assets other than those mentioned in items (A) to (C), the said period shall be determined in such manner, as may be prescribed, where,–– (A) “equity oriented fund” shall have the meaning assigned to it in section 198(8); (B) “security” shall have the same meaning as assigned to it in section 2(h) of the Securities Contracts (Regulation) Act, 1956; (C) “specified security” means the securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956 and, where employees’ stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme; (D) “sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called; (102) “short-term capital gain” means capital gains arising from the transfer of a short-term capital asset; (103) (a) “slump sale” means the transfer of one or more undertaking, by any means, for a lump sum consideration without values being assigned to the individual assets and liabilities in such transfer; (b) for the purpose of sub-clause (a)— (i) “undertaking” shall have the meaning assigned to it in clause (35)(i); and (ii) the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities; (104) “Special Economic Zone” shall have the same meaning as assigned to it in section 2(za) of the Special Economic Zones Act, 2005; (105) “stamp duty value” means the value adopted or assessed or assessable by any authority of the Central Government or State Government for the payment of stamp duty in respect of an immovable property, where the expression “assessable” shall mean the value which any authority of that Government would have adopted or assessed as if it were referred to such authority for the purposes of payment of stamp duty, irrespective of anything to the contrary contained in any other law in force; (106) “tax” means income-tax chargeable under this Act; (107) “Tax Recovery Officer” means an Income-tax Officer authorised in writing by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, to exercise–– (a) the powers of a Tax Recovery Officer; and (b) the powers and functions conferred on, or assigned to, an Assessing Officer under this Act, and as may be prescribed; (108) “total income” means the total amount of income referred to in section 5, computed in the manner as laid down in this Act; (109) “transfer” in relation to a capital asset, includes— (a) the sale, exchange or relinquishment of the asset; or 42 of 1956. 42 of 1956. 28 of 2005. (b) the extinguishment of any rights therein; or (c) the compulsory acquisition thereof under any law in force; or (d) where the asset is converted by the owner into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment; or (e) the maturity or redemption of a zero coupon bond; or (f) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner) which has the effect of transferring, or enabling the enjoyment of, any immovable property; or (g) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; or (h) disposing of, or parting with, an asset or any interest therein, or creating any interest in any asset in any manner, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, irrespective of whether such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India, where, the expression “immovable property” means— (i) any land or any building or part of a building, and includes, where any land or any building or part of a building is to be transferred together with any machinery, plant, furniture, fittings or other things, such machinery, plant, furniture, fittings or other things also, such that the land, building, part of a building, machinery, plant, furniture, fittings and other things include any rights therein; (ii) any rights in or with respect to any land or any building or a part of a building (whether or not including any machinery, plant, furniture, fittings or other things therein), which has been constructed or which is to be constructed, accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease of such land, building or part of a building; (110) “Valuation Officer” means a person appointed by the Central Government as a Valuation Officer who shall exercise powers as specified in section 269(3), and includes a Regional Valuation Officer, a District Valuation Officer and an Assistant Valuation Officer; (111) “virtual digital asset” means— (a) any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, called by any name, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically; 4 of 1882. (b) a non-fungible token or any other token of similar nature, by whatever name called; (c) any other digital asset, as the Central Government may, by notification, specify; (d) any crypto-asset being a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions, whether or not such asset is included in sub-clause (a) or (b) or (c), where,–– (i) “non-fungible token” means such digital asset as the Central Government may, by notification, specify; (ii) the Central Government may, by notification, exclude any digital asset from this definition, subject to such conditions as specified therein; (112) “zero coupon bond” means a bond— (a) issued by any infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank on or after the 1st June, 2005; (b) for which no payment and benefit is received or receivable before maturity or redemption from infrastructure capital company or infrastructure capital fund or infrastructure debt fund or public sector company or scheduled bank; and (c) which the Central Government may, by notification, specify, where, the expression “infrastructure debt fund” means the infrastructure debt fund notified by the Central Government under Schedule VII (Table: Sl. No. 46). Definition of “tax year”. 3. (1) For the purposes of this Act, “tax year” means the twelve months period of the financial year commencing on the 1st April. (2) In the case of a business or profession newly set up, or a source of income newly coming into existence in any financial year, the tax year shall be the period beginning with— (a) the date of setting up of such business or profession; or (b) the date on which such source of income newly comes into existence, and ending with the said financial year. CHAPTER II BASIS OF CHARGE Charge of income-tax. 4. (1) Where any Central Act enacts that income-tax shall be charged for any tax year at any rate or rates, income-tax for such tax year shall be charged at that rate or those rates in accordance with and subject to the provisions of this Act. (2) The charge of income-tax under sub-section (1)shall be on the total income of the tax year of every person as per the provisions of this Act. (3) Income-tax shall also include any additional income-tax, by whatever name called, levied under this Act. (4) If this Act provides that income-tax is to be charged in respect of income of a period other than the tax year, it shall be charged accordingly. (5) For the income chargeable under this section, income-tax shall be deducted or collected at source or paid in advance as provided under this Act. Scope of total income. 5. (1) Subject to the provisions of this Act, the total income of any tax year of a person, who is a resident, includes all income from whatever source derived, which— (a) is received or deemed to be received in India in that year by or on behalf of such person; (b) accrues or arises, or is deemed to accrue or arise, to such person in India in that year; or (c) accrues or arises to such person outside India in that year, but when such person is “not ordinarily resident” in India under section 6(13), such income shall be included only when it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of a tax year of a person, who is a non-resident, includes all income from whatever source derived, which–– (a) is received or deemed to be received in India in that year by or on behalf of such person; or (b) accrues or arises, or is deemed to accrue or arise, to such person in India in that year. (3) Income accruing or arising outside India shall not be deemed to be received in India under this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. (4) If an income has been included in a person’s total income on the basis that it–– (a) has accrued or arisen; or (b) is deemed to have accrued or arisen, to such person, it shall not again be included on the basis that it is received or deemed to be received by that person in India. Residence in India. 6. (1) For the purposes of this Act,residential status in India in a tax year of a person shall be determined as per the provisions of this section. (2) An individual shall be resident in India in a tax year, if he–– (a) is in India for a total period of one hundred and eighty-two days or more in that tax year; or (b) is in India cumulatively for sixty days or more during that year and has been in India cumulatively for three hundred and sixty-five days or more in the four years preceding such tax year. (3) The provisions of sub-section (2)(b) shall not apply in the case of an individual who is a citizen of India and leaves India in any tax year–– (a) as a member of the crew of an Indian ship, as defined in section 3(18) of the Merchant Shipping Act, 1958; or (b) for the purposes of employment outside India. (4) The provisions of sub-section (2)(b) shall not apply, subject to the provisions of sub-section (5), in the case of an individual–– (a) who is a citizen of India or a person of Indian origin; and (b) who being outside India, comes on a visit to India in any tax year. (5) Where the person referred to in sub-section (4) has a total income exceeding fifteen lakh rupees during the tax year referred therein (other than the income from foreign sources), sub-section (2)(b) shall apply as if the words “sixty days” had been substituted with “one hundred and twenty days”. (6) For the purposes of sub-section (2), if the individual is–– (a) a citizen of India; and (b) a member of the crew of a foreign-bound ship leaving India, the total number of days in India, in respect of that voyage, shall be determined in such manner and subject to such conditions, as may be prescribed. 44 of 1958. (7) Irrespective of the provisions of sub-sections (2) to (6), an individual shall be deemed to be resident in India for a tax year, if he–– (a) is a citizen of India; (b) is not liable to tax in any other country or territory due to his domicile, residence, or similar criteria; and (c) has total income exceeding fifteen lakh rupees during such tax year (other than the income from foreign sources). (8) Sub-section (7) shall not apply to an individual, who is resident in India for a tax year under sub-sections (2) to (6). (9) A Hindu undivided family, firm or other association of persons shall be resident in India in any tax year unless the control and management of its affairs is situated wholly outside India during such tax year. (10)(a) A company is said to be a said to be a resident in India in any tax year, if— (i) it is an Indian company; or (ii) its place of effective management is in India in that tax year; (b) for the purposes of this sub-section, “place of effective management” means a place where key management and commercial decisions necessary for the conduct of business of the company as a whole are, in substance, made. (11) Every other person is resident in India in any tax year unless during that tax year the control and management of the affairs of such person is situated wholly outside India. (12) If a person is resident in India in a tax year for any source of income, he shall be deemed to be resident in India in that tax year for each of his other sources of income. (13) A person is not ordinarily resident in India in any tax year, if that person is— (a) an individual who has been, or a Hindu undivided family, whose manager has been–– (i) a non-resident in India in nine out of the ten tax years preceding that year; or (ii) in India cumulatively for seven hundred and twenty-nine days or less in seven tax years preceding that year; or (b) a citizen of India or a person of Indian origin,–– (i) whose total income excluding income from foreign sources exceeds fifteen lakh rupees during the tax year, as mentioned in sub-section (5); and (ii) who has been in India cumulatively for one hundred and twenty days or more but less than one hundred and eighty-two days during the tax year; or (c) a citizen of India who is deemed to be resident in India under sub-section (7). (14) For the purposes of this section, “income from foreign sources” means the income, which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India) and which is not deemed to accrue or arise in India. Income deemed to be received and dividend deemed to be income in a tax year. 7. (1) The following incomes shall be deemed to be received in the tax year:— (a) the annual accretion in that year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in paragraph 6 of Part A of Schedule XI; (b) the transferred balance in a recognised provident fund, to the extent provided in paragraph 11(4) and (5) of Part A of Schedule XI; (c) the contribution made by the Central Government or any other employer in that year to the account of an employee under a pension scheme mentioned in section 124. (2) For inclusion in the total income of an assessee,— (a) any dividend declared by a company or distributed or paid by it within the meaning of section 2(40)(a) to (f) shall be deemed to be the income of the tax year in which it is so declared, distributed or paid, as the case may be; (b) any interim dividend shall be deemed to be the income of the tax year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it. Income on receipt of capital asset or stock-in-trade by specified person from specified entity. 8. (1) Where a specified person receives during the tax year any capital asset or stock-in-trade, or both, from a specified entity in connection with the dissolution or reconstitution of such specified entity, then the specified entity shall be deemed to have transferred such capital asset or stock-in-trade, or both, to the specified person in the year in which such capital asset or stock-in-trade, or both, are received by the specified person. (2) Any profits and gains arising from the deemed transfer mentioned in sub-section (1) by the specified entity shall be— (i) deemed to be the income of such specified entity of the tax year in which such capital asset or stock-in-trade, or both, were received by the specified person; and (ii) chargeable to income-tax as income of such specified entity under the head “Profits and gains of business or profession” or under the head “Capital gains”. (3) For the purposes of this section, fair market value of the capital asset or stock-in-trade, or both, on the date of its receipt by the specified person shall be deemed to be the full value of the consideration received or accruing as a result of such deemed transfer mentioned in sub-section (1). (4) If any difficulty arises in giving effect to the provisions of this section and section 67(10), the Board may, with the previous approval of the Central Government, issue guidelines for removing the difficulty. (5) Every guideline issued by the Board under sub-section (4) shall be laid before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both houses agree in making any modification in such guideline or both Houses agree that the guideline, should not be issued, the guideline shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that guideline. Income deemed to accrue or arise in India. (6) For the purposes of this section,— (a) “specified entity” means a firm or other association of persons or body of individuals (not being a company or a co-operative society); (b) “specified person” means a person, who is a partner of a firm or member of other association of persons or body of individuals (not being a company or a co-operative society) in any tax year; (c) “reconstitution of the specified entity” means, where— (i) one or more of its partners or members, of such specified entity ceases to be partners or members; or (ii) one or more new partners or members are admitted in such specified entity in such circumstances that one or more of the persons who were partners or members, of the specified entity, before the change, continue as partner or partners or member or members after the change; or (iii) all the partners or members, of such specified entity continue with a change in their respective share or in the shares of some of them. 9. (1) The income referred to in sub-sections (2) to (8) shall be deemed to accrue or arise in India. (2) The income accruing or arising, directly or indirectly, through or from–– (a) any asset or source of income in India; or (b) any property in India; or (c) any business connection in India; or (d) the transfer of a capital asset situated in India, shall be deemed to accrue or arise in India. (3) Any income falling under the head “Salaries” shall be deemed to accrue or arise in India, if it is— (a) earned in India, and any income payable for,— (i) services rendered in India; and (ii) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India; (b) payable by the Government to an Indian citizen for services rendered outside India. (4) Any dividend paid by an Indian company outside India shall be deemed to accrue or arise in India. (5)(a) Income by way of interest payable by–– (i) the Government; (ii) a resident, except where it is payable in respect of any debt incurred, or moneys borrowed and used, for the purpose of— (A) a business or profession carried on by such resident outside India; or (B) making or earning any income by such resident from any source outside India; or (iii) a non-resident, if it is in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such non-resident in India, shall be deemed to accrue or arise in India; (b) for the purposes of clause (a),–– (i) any interest payable by the permanent establishment in India of a non-resident person engaged in the business of banking, to the head office or any other permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to such permanent establishment in India; (ii) such permanent establishment in India shall–– (A) be deemed to be a person separate from, and independent of, the non-resident person of which it is a permanent establishment; and (B) the provisions of this Act relating to computation of total income, determination of tax and collection and recovery shall apply, accordingly; (iii) “permanent establishment” shall have the meaning assigned to it in section 173(c). (6)(a) Income by way of royalty payable by–– (i) the Government; (ii) a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of— (A) a business or profession carried on by such resident outside India; or (B) making or earning any income by such resident from any source outside India; or (iii) a non-resident, if the royalty is payable in respect of any right, property or information used or services utilised for the purposes of— (A) a business or a profession carried on by such non-resident in India; or (B) making or earning any income by such non-resident from any source in India, shall be deemed to accrue or arise in India; (b) in this sub-section, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for the following–– (i) the transfer or grant of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (v) the use or right to use any industrial, commercial or scientific equipment except the amounts referred in section 61(2) (Table: Sl. No. 5); (vi) the transfer or grant of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including–– (A) films or video tapes for use in connection with television; or (B) tapes for use in connection with radio broadcasting; (vii) the rendering of services in connection with the activities referred to in sub-clauses (i) to (vi); (c) for the purposes of clause (b),–– (i) the transfer or grant of all or any rights in respect of any right, property or information includes transfer or grant of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which that right is transferred; (ii) royalty includes consideration in respect of any right, property or information, whether or not–– (A) the possession or control of that right, property or information is with the payer; (B) that right, property or information is used directly by the payer; (C) the location of that right, property or information is in India; (iii) the expression “process” includes transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not that process is secret; (iv) the expression “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customised electronic data. (7)(a) Income by way of fees for technical services payable by–– (i) the Government; (ii) a resident, except where it is payable in respect of services utilised for— (A) a business or profession carried on by such resident outside India; or (B) making or earning any income by such resident from any source outside India; or (iii) a non-resident, if it is payable in respect of services utilised for— (A) a business or a profession carried on by such non-resident in India; or (B) making or earning any income by such non-resident from any source in India, shall be deemed to accrue or arise in India; (b) in this sub-section, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration— (i) for any construction, assembly, mining or like project undertaken by the recipient; or (ii) which would be income of the recipient chargeable under the head “Salaries”. (8) Income arising outside India, in the nature of a sum referred to in section 2(49)(u), paid by a person resident in India,–– (a) to a non-resident, not being a company, or to a foreign company; or (b) to a person not ordinarily resident in India under section 6(13), shall be deemed to accrue or arise in India. (9)(a) For the purposes of this section, “business connection” in India shall include— (i) any business carried out in India in the case of which all or part of operation are carried out in India; or (ii) a significant economic presence in India; (b) in clause (a), a business carried out in India shall include–– (i) business activity carried out through a person who, acting on behalf of the non-resident,— (A) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident or habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are— (I) in the name of the non-resident; or (II) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or (III) for the provision of services by the non-resident; or (B) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or (C) habitually secures orders in India, mainly or wholly for the non-resident, or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident; (ii) a business activity carried out through a person who is a broker, general commission agent or any other agent, through whom such activity is carried out, and who is working mainly or wholly on behalf of–– (A) a non-resident (referred to as the principal non-resident); or (B) such non-resident and other non-residents who— (I) are controlled by the principal non-resident; or (II) have a controlling interest in the principal non-resident; or (III) are subject to the same common control as the principal non-resident, and such person shall not be deemed as having an independent status; (c) in clauses (a) and (b), a business carried out in India shall not include any business activity or operations of the non-resident–– (i) carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent is acting in the ordinary course of his business; or (ii) which are confined to any of the following–– (A) the purchase of goods in India for the purposes of export out of India; or (B) the collection of news and views in India for transmission out of India, in the case where such non-resident is engaged in the business of running a news agency or of publishing newspapers, magazines or journals; or (C) the display of uncut and unassorted diamond in any special zone notified by the Central Government, in the case where such non-resident is a foreign company engaged in the business of mining of diamonds; or (D) the shooting of any cinematographic film in India, in the case where such non-resident is a person being–– (I) an individual who is not an Indian citizen; or (II) a firm which does not have a partner who is an Indian citizen or who is resident in India; or (III) a company which does not have a shareholder who is an Indian citizen or who is resident in India; (d) a non-resident shall have a significant economic presence in India, where there is— (i) transaction in respect of any goods, services or property carried out by such non-resident with any person in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the tax year exceeds such amount as may be prescribed; or (ii) systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed, irrespective of whether the agreement for such transactions or activities is entered in India, or the non-resident has a residence or place of business in India, or the non-resident renders any services in India; (e) the provisions of clause (d) shall not apply to the transactions or activities which are confined to the purchase of goods in India for the purpose of export; (f) in this section, only the income which is reasonably attributable to–– (i) operations carried out in India, when all operations of the business are not carried out in India; (ii) transactions or activities referred to in clause (d), shall be deemed to accrue or arise in India from any business connection; (g) the income attributable to operations of any business or significant economic presence in this section shall also include income from–– (i) such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India; (ii) sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India; and (iii) sale of goods or services using data collected from a person who resides in India or from a person who uses internet protocol address located in India. (10) In sub-section (2),–– (a) an asset or a capital asset, being any share of, or interest in, a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets (whether tangible or intangible) located in India; (b) the share or interest, referred to in clause (a), shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if on the specified date, the value of such assets,–– (i) exceeds the amount of ten crore rupees; and (ii) represents at least 50% of the value of all the assets owned by the company or entity, as the case may be; (c) the value of an asset shall be the fair market value on the specified date of such asset without reduction of liabilities, if any, in respect of the asset, determined in the manner, as may be prescribed; (d) the expression “specified date” in clause (c) means— (i) the date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or (ii) the date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by 15%; (e) the expression “accounting period” in clause (d) means–– (i) each period of twelve months ending with the 31st March; (ii) each period of twelve months ending with a date other than the 31st March, in a case where a company or an entity, referred to in clause (a), regularly adopts a period of twelve months ending on a day other than the 31st March for— (A) complying with the provisions of the tax laws of the territory, of which it is a resident, for tax purposes; or (B) reporting to persons holding the share or interest; (iii) the period beginning with the date of registration or incorporation of a company or entity and ending with the 31st March or such other day referred to in sub-clause (ii), in a case where a company or entity comes into existence and the later accounting period shall be the successive periods of twelve months; or (iv) the period beginning with the 1st April or such other day as applicable in sub-clause (ii) and ending with the date immediately preceding the date on which the company or entity ceases to exist, in a case where the company or the entity ceases to exist before the end of the accounting period; (f) in case of assets mentioned in clause (a), if–– (i) there is a transfer outside India of any share of, or interest in, a company or an entity registered or incorporated outside India by a non-resident transferor; and (ii) all the assets owned, directly or indirectly, by that company or entity are not located in India, then, the income referred to in sub-section (2) shall be only such part of the income as is reasonably attributable to assets located in India and determined in the manner, as may be prescribed; (g) the income referred to in sub-section (2) shall not include income from transfer, outside India, of any share of, or interest in, a company or an entity registered or incorporated outside India,–– (i) if such share of, or interest in, a company or an entity registered or incorporated outside India is held by a non-resident by way of investment, directly or indirectly,–– (A) in Category I or Category II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, prior to their repeal, made under the Securities and Exchange Board of India Act, 1992; (B) in Category I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992; (ii) if such company or entity directly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer,–– (A) does not hold the right of management or control in relation to such company or the entity; and (B) does not hold voting power or share capital or interest exceeding 5% of the total voting power or total share capital or total interest, as the case may be, of such company or entity; or (iii) if such company or entity indirectly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer,–– (A) does not hold the right of management or control in relation to such company or the entity; (B) does not hold any right in, or in relation to, such company or entity which would entitle it to the right of management or control in the company or entity which directly owns the assets situated in India; and (C) does not hold such percentage of voting power or share capital or interest in such company or entity which results in holding of (either individually or along with associated enterprises) a voting power or share capital or interest exceeding 5% of the total voting power or total share capital or total interest, as the case may be, of the company or entity, which directly owns the assets situated in India; (iv) in this clause, “associated enterprises” shall have the meaning assigned to it in section 162. 15 of 1992. 15 of 1992. (11) In sub-sections (5), (6) and (7), income of a non-resident shall be deemed to accrue or arise in India and shall be included in his total income, whether or not,–– (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. (12)(a) In this section, the fund management activity carried out by an eligible investment fund through an eligible fund manager acting on behalf of such fund, shall not constitute business connection in India of that fund; (b) the eligible investment fund mentioned in clause (a) shall not be said to be resident in India under section 6 merely because the eligible fund manager, undertaking fund management activities on its behalf, is situated in India; (c) nothing contained in this section shall apply to exclude any income from the total income of the eligible investment fund, which would have been so included irrespective of whether the activity of the eligible fund manager constituted the business connection in India of such fund or not; (d) nothing contained in this section shall have any effect on the scope of total income or determination of total income in the case of the eligible fund manager; (e) the conditions for being an eligible investment fund or an eligible fund manager, or furnishing of requisite statements shall be as per the provisions of Schedule I; (f) the Central Government may, by notification, specify that any one or more of the conditions as referred to in clause (e) shall not apply, or shall apply, with such modifications, as specified, in case of an eligible investment fund and its eligible fund manager, if–– (i) the eligible fund manager is located in an International Financial Services Centre; and (ii) has commenced its operations on or before the 31st March, 2030. (13) For the purposes of this section, the expression “through” shall mean and include “by means of”, “in consequence of” or “by reason of”. Apportionment of income between spouses governed by Portuguese Civil Code. 10. If a husband and wife are governed by the community of property system (known as “COMMUNIAO DOS BENS” under the Portuguese Civil Code of 1860) in force in the State of Goa and the Union territories of Dadra and Nagar Haveli and Daman and Diu, then–– (a) their income under any head of income shall not be assessed together as that of such community of property (whether treated as an association of persons or a body of individuals); (b) the income mentioned in clause (a) under each head of income other than “Salaries” shall be divided equally between the husband and the wife; (c) the income so divided shall be included separately in the total income of the husband and the wife respectively, and the remaining provisions of this Act shall apply accordingly; and (d) where either the husband or the wife, has any income under the head “Salaries”, that income shall be included in the total income of the spouse who has actually earned it. CHAPTER III INCOMES WHICH DO NOT FORM PART OF TOTAL INCOME A.—Incomes not to be included in total income Incomes not included in total income. 11. (1) In computing the total income of any person for a tax year under this Act, any income enumerated in Schedules II, III, IV V and VI shall not be included, subject to fulfilment of conditions specified therein. (2) Wherever the conditions referred to in the Schedules referred in sub-section (1) are not satisfied in any tax year in respect of any income enumerated in the said Schedules, such income shall be charged to tax under this Act on the total income for that tax year. (3) The persons enumerated in Schedule VII shall, subject to fulfilment of the conditions specified therein, not be chargeable to tax under this Act on the total income for a tax year. (4) Wherever the conditions referred to in Schedule VII are not satisfied in respect of the persons enumerated in the said Schedule in any tax year, the income of such person shall be charged to tax under the provisions of this Act for that tax year. (5) The Central Government may make rules or issue notifications for the purposes of this section as specified in Schedules II, III, IV, V, VI and VII. B.—Incomes not to be included in total income of political parties and electoral trusts Incomes not included in total income of political parties and electoral trusts. 12. (1) In computing the total income of any political party or an electoral trust for a tax year under this Act, any income enumerated in Schedule VIII shall not be included, subject to fulfilment of conditions specified therein. (2) Wherever the conditions referred to in Schedule VIII are not satisfied in any tax year in respect of any income enumerated in the said Schedule, such income shall be charged to tax under this Act for that tax year. (3) The Central Government may make rules or issue notifications for the purposes of this section as specified in Schedule VIII. CHAPTER IV COMPUTATION OF TOTAL INCOME A.—Heads of income Heads of income. 13. Save as otherwise provided in this Act, all incomes shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income:— (a) Salaries; (b) Income from house property; (c) Profits and gains of business or profession; (d) Capital gains; and (e) Income from other sources. Income not forming part of total income and expenditure in relation to such income. 14. (1) Irrespective of anything to the contrary contained in this Act, for the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. (2) Where the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with— (a) the correctness of the claim of expenditure incurred by the assessee; or (b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under this Act, he shall determine such amount of expenditure in accordance with any method, as may be prescribed. (3) Irrespective of anything to the contrary contained in this Act, the provisions of this section shall apply in a case where any expenditure has been incurred during any tax year in relation to income which does not form part of the total income under this Act, but such income has not accrued or arisen or has not been received during that tax year. B.—Salaries Salaries. 15. (1) The following income shall be chargeable to income-tax under the head “Salaries”:— (a) any salary due from an employer to an assessee in the tax year, whether paid or not; (b) any salary paid or allowed to him in the tax year by or on behalf of an employer though not due or before it became due to him; (c) any arrears of salary paid or allowed to him in the tax year by or on behalf of an employer, if not charged to income-tax for any earlier tax year. (2) For the purposes of sub-section (1), employer includes former employer. (3) If any salary paid in advance is included in the total income of any person for any tax year, it shall not be included again in the total income of such person when the salary becomes due. (4) Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as salary for the purposes of this section. Income from salary. 16. For the purposes of this Part, “salary” includes— (a) wages; (b) any annuity or pension; (c) any gratuity; (d) any fees or commission; (e) perquisites; (f) profits in lieu of, or in addition to, any salary or wages; (g) any advance of salary; (h) any payment received by an employee in respect of any period of leave not availed of by him; (i) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax as per paragraph 6 of Part A of Schedule XI; (j) the aggregate of all sums that are comprised in the transferred balance as referred to in paragraph 11(2) of Part A of Schedule XI of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-paragraphs (4) and (5) thereof; (k) the contribution made by the Central Government or any other employer in any tax year, to the account of an employee under a pension scheme referred to in section 124; and (l) the contribution made by the Central Government in any tax year, to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 125. Perquisite. 17. (1) For the purposes of this Part, “perquisite” includes— (a) the value of rent-free accommodation provided to the assessee by his employer computed in such manner as may be prescribed; (b) the value of any accommodation, computed in such manner as may be prescribed, provided to the assessee by his employer at a concessional rate which is in excess of rent recoverable from or payable by the assessee; (c) the value of any benefit or amenity granted or provided free of cost or at concessional rate in the following cases:— (i) by a company to an employee, who is a director thereof or who has a substantial interest in the company; (ii) by any employer (including a company) to an employee [other than employee referred in sub-clause (i)] whose income under the head “Salaries” by way of monetary payment (from one or more employers) exceeds such amount as may be prescribed; (d) the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the current employer, or former employer, free of cost or at concessional rate to the assessee; (e) the value of any other benefit or amenity, as may be prescribed; (f) any sum paid by the employer in respect of any obligation which, but for such payment, would have been payable by the assessee; (g) any sum payable by the employer to effect an assurance on the life of the assessee or to effect a contract for an annuity, whether directly or through a fund, other than–– (i) a recognised provident fund; or (ii) an approved superannuation fund; or (iii) a Deposit-linked Insurance Fund established under–– (A) section 3G of the Coal Mines Provident Fund and Miscellaneous Provisions Act, 1948; or (B) section 6C of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952; (h) aggregate amount of any contribution, in excess of ₹ 750000 in a tax year, made to the account of the assessee by the employer— (i) in a recognised provident fund; (ii) in the scheme referred to in section 124(1); and (iii) in an approved superannuation fund; 46 of 1948. 19 of 1952. (i) the annual accretion by way of interest, dividend or any other amount of similar nature during the tax year to the balance at the credit of the fund or scheme referred to in clause (h), computed in such manner, as may be prescribed (to the extent it relates to the contribution referred to in the said clause in any tax year). (2) Nothing in sub-section (1) shall apply to–– (a) the value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer; (b) any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family— (i) in any hospital maintained by the Government, or any local authority, or any other hospital approved by the Government for the purposes of medical treatment of its employees; (ii) in respect of the prescribed diseases or ailments, in any hospital approved by the Principal Chief Commissioner or Chief Commissioner having regard to such guidelines as may be issued in this behalf; (c) any portion of the premium paid by an employer in relation to an employee, to effect or to keep in force an insurance on the health of such employee under any scheme approved, for the purposes of section 30(c), by the–– (i) Central Government; or (ii) Insurance Regulatory and Development Authority established under section 3(1) of the Insurance Regulatory and Development Authority Act, 1999; (d) any sum paid by the employer in respect of any premium paid by the employee to effect or to keep in force an insurance on his health or the health of any member of his family under any scheme, approved for the purposes of section 126, by the— (i) Central Government; or (ii) Insurance Regulatory and Development Authority established under section 3(1) of the Insurance Regulatory and Development Authority Act, 1999; (e) any expenditure incurred by the employer for the use of any vehicle for journey by the assessee from his residence to his office or other place of work, or from such office or place to his residence; (f) any expenditure incurred by the employer, or any sum paid by the employer in respect of any expenditure actually incurred by the employee, on— (i) medical treatment of the employee or any family member of such employee outside India; (ii) travel and stay abroad for the employee or any member of the family of such employee for medical treatment; (iii) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment. 41 of 1999. 41 of 1999. (3) For the purposes of sub-section (2)(f),— (a) the expenditure on medical treatment and stay abroad shall be excluded from the perquisite only to the extent permitted by the Reserve Bank of India; and (b) the expenditure on travel shall be excluded from perquisite only in the case of an employee whose gross total income, as computed before including therein the said expenditure, does not exceed such amount as may be prescribed. (4) For the purposes of this section,— (a) “fair market value” means the value determined in accordance with the method, as may be prescribed; (b) “family”, in relation to an individual, shall have the meaning assigned to it in Schedule III (Note 2); (c) “gross total income” shall have the meaning assigned to it in section 122(10); (d) “hospital” includes a dispensary or a clinic or a nursing home; (e) “option” means a right but not an obligation, granted to an employee to apply for the specified security or sweat equity shares at a predetermined price; (f) “specified security” means the securities as defined in section 2(h) of the Securities Contracts (Regulation) Act, 1956 and, where employees’ stock option has been granted under any plan or scheme therefor, includes the securities offered under such plan or scheme; (g) “sweat equity shares” means equity shares issued by a company to its employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called; (h) the value of any specified security or sweat equity shares shall be the fair market value of the specified security or sweat equity shares, on the date on which the option is exercised by the assessee, as reduced by the amount actually paid by, or recovered from, the assessee in respect of such security or shares. Profits in lieu of salary. 18. (1) For the purposes of this Part, “profits in lieu of salary” includes,— (a) the amount of any compensation due to, or received by, an assessee from his employer or former employer at or in connection with the— (i) termination of his employment; or (ii) modification of the terms and conditions relating thereto; (b) any amount due to, or received, whether in lump sum or otherwise, by any assessee from any person— (i) before his joining any employment with that person; or (ii) after cessation of his employment with that person; (c) any payment due to or received by an assessee— (i) from an employer or a former employer; or (ii) from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or interest on such contributions; or 42 of 1956. (iii) any sum received under a Keyman insurance policy as defined in Schedule II (Note 1), including the sum allocated by way of bonus on such policy. (2) The payment referred in sub-section (1)(c) shall not include any payment referred to in–– (a) Schedule II (Table: Sl. No. 3); (b) Schedule II (Table: Sl. No. 4); (c) Schedule II (Table: Sl. No. 8); and (d) Schedule III (Table: Sl. No. 11). Deductions from salaries. 19. (1) The income chargeable under the head “Salaries” shall be computed after making the deductions in respect of sums of the nature mentioned in column B of the following Table, not exceeding the amount as mentioned in column C thereof:— Table Sl. No. | Nature of sum | Amount of deduction ---|---|--- A | B | C 1. | Sum paid by the assessee as a tax on employment as per article 276(2) of the Constitution, leviable by or under any law. | Entire amount. 2. | Standard deduction. | (a) ₹ 75000 or the salary, whichever is less, where income-tax is computed under section 202(1); (b) ₹ 50000 or the salary, whichever is less, in any other case. 3. | Death-cum-retirement gratuity received as referred to in sub-section (2)(g). | Entire amount. 4. | Payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services. | Entire amount. 5. | Gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972). | Amount received, as restricted to the amount calculated as per the provisions of section 4(2) and (3) of the said Act. 6. | Any other gratuity received by an employee— (i) on his retirement; or (ii) on his becoming incapacitated before such retirement; or (iii) on termination of his employment. | Amount being minimum of— (a) actual gratuity received; (b) amount specified by the Central Government, by notification, having regard to the limit applicable in this behalf to the employees of the Central Government; and A B C (c) half month’s salary for each completed year of service, calculated as under:— Amount = 1/2 (A x B) where,— A = average salary for ten months immediately preceding the month when any such event occurs; B = number of such completed years. 7. | Payment in commutation of pension received— (a) under the Civil Pensions (Commutation) Rules of the Central Government; or (b) under any similar scheme applicable to–– (i) the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union, [such members or holders not covered under (a)]; (ii) the members of the all-India services; (iii) the members of the defence services; (iv) the members of the civil services of a State, or the holders of civil posts under a State; or (v) the employees of a local authority or a corporation established by a Central Act or State Act or Provincial Act. | Entire amount. 8. | Payment in commutation of pension is received under any scheme from any other employer. | The commuted value shall be determined having regard to the age of the recipient, the state of his health, the rate of interest and officially recognised tables of mortality, and— (a) where the employee has received gratuity, the commuted value of one-third of the pension, which he is normally entitled to receive; and A B C (b) in any other case, the commuted value of one-half of such pension. 9. | Payment in commutation of pension received from a fund as specified in Schedule VII (Table: Sl. No. 3). | Entire amount. 10. | Compensation received by a workman at the time of his retrenchment— (a) under the Industrial Disputes Act, 1947 (14 of 1947); or (b) under any other Act or rules, orders or notifications issued thereunder; or (c) under any standing orders; or (d) under any award, contract of service or otherwise. | Minimum of— (a) compensation received; (b) amount calculated as per provisions of section 25F(b) of the Industrial Disputes Act, 1947 (14 of 1947); (c) such amount, not being less than ₹50000, as may be notified by the Central Government. 11. | In case of compensation referred to in Sl. No. 10, where such compensation received is in accordance with any scheme which the Central Government may approve in this behalf, having regard to–– (a) the need for extending special protection to the workmen in the undertaking to which such scheme applies; and (b) other relevant circumstances. | Compensation received. 12. | Amount received or receivable on voluntary retirement or termination of service under a scheme or schemes of voluntary retirement, by an employee as referred to in sub-section (2)(h). | Minimum of— (a) compensation received; and (b) ₹ 500000. 13. | Payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement whether on superannuation or otherwise. | Entire amount. A B C 14. | Payment of the nature referred against serial number 13 received by an employee who is not a Central Government or State Government employee. | Amount being minimum of— (a) the cash equivalent of the leave salary in respect of the period of earned leave at his credit at the time of his retirement, whether on superannuation or otherwise (entitlement of earned leave shall not exceed thirty days for every year of actual service); (b) amount “A”, where,— A =10×B; B = average monthly salary for the ten months immediately preceding his retirement whether on superannuation or otherwise; (c) amount as the Central Government may, by notification, specify in this behalf having regard to the limit applicable in this behalf to the employees of that Government; and (d) actual payment received. (2) For the purposes of the Table referred to in sub-section (1),— (a) in respect of the entries against serial number 6 thereof, if gratuity or gratuities was or were received from one or more than one employer in the same tax year (whether or not any gratuity or gratuities was or were received in any earlier tax year), the aggregate amount of deduction shall not exceed— A – B, where,— A = the limit specified by the Central Government, by notification; and B = the aggregate amount of gratuity or gratuities which was or were received in any one or more earlier tax years and allowed as an exemption or a deduction (whether whole or part) from the total income of any such tax year or years; 14 of 1947. (b) in respect of the entries against serial numbers 6 and 14 thereof, “Salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites; (c) in respect of the entries against serial numbers 10 and 11 thereof, the following amounts shall be deemed to be compensation received at the time of retrenchment:–– (i) compensation received by a workman at the time of the closing down of the undertaking in which he is employed; (ii) compensation received by a workman, at the time of the transfer (whether by agreement or by operation of law) of the ownership or management of the undertaking in which he is employed, from the employer in relation to that undertaking to a new employer, if— (A) the service of the workman has been interrupted by such transfer; or (B) the terms and conditions of service applicable to the workman after such transfer are in any way less favourable to the workman than those applicable to him immediately before such transfer; or (C) the new employer is, under the terms of such transfer or otherwise, legally not liable to pay to the workman, in the event of his retrenchment or compensation on the basis that his service has been continuous and has been interrupted by such transfer; (d) in respect of the entries against serial numbers 10 and 11 thereof, the expressions “employer” and “workman” shall have the same meanings as respectively assigned to them in the Industrial Disputes Act, 1947; (e) the provisions of the entries against serial number 12 thereof shall be subject to the following conditions:–– (i) the applicable schemes of the said companies or authorities or societies or Universities or the institutes referred to in clauses (h)(vii) and (x), governing the payment of such amount are made as per such guidelines (including, inter alia, criteria of economic viability) as may be issued in this behalf; (ii) where deduction has been allowed to an employee in respect of the said item for any tax year, no deduction thereunder shall be allowed to him in relation to any other tax year; and (iii) where any relief under section 157 has been allowed to an assessee for any tax year in respect of any amount referred to in the said item, such amount shall not be allowed as a deduction from the compensation received or receivable in any tax year; (f) in respect of the entries against serial number 14 thereof, if any payment on account of cash equivalent of leave salary is received from one or more than one employer in the same tax year (whether or not any such payment or payments was or were received in any earlier tax year), the aggregate amount of deduction shall not exceed— A – B, where,— A = the limit specified by the Central Government, by notification; and B = the aggregate amount of payment or payments which was received in any one or more earlier tax years and allowed as an exemption or a deduction (whether whole or part) from total income of any such tax year or years; (g) the death-cum-retirement gratuity referred to in sub-section (1) (Table: Sl. No. 3) shall be as–– (A) received under the revised pension rules of the Central Government, or the Central Civil Services (Pension) Rules, 2021; or (B) received under any similar scheme applicable–– (i) to the members of the civil services of the Union or holders of posts connected with defence or of civil posts under the Union (such members or holders being persons not governed by the said rules); (ii) to the members of the all-India services; (iii) to the members of the civil services of a State or holders of civil posts under a State; or (iv) to the employees of a local authority; (h) the schemes of voluntary retirement or termination of service as referred to in sub-section (1) (Table: Sl. No. 12) shall be for the employees of–– (i) a public sector company (under a scheme of voluntary separation); or (ii) any other company; or (iii) an authority established under a Central Act or State Act or Provincial Act; or (iv) a local authority; or (v) a co-operative society; or (vi) a University established or incorporated by or under a Central Act or State Act or Provincial Act and an institution declared to be a University under section 3 of the University Grants Commission Act, 1956; or (vii) an Indian Institute of Technology within the meaning of section 3(g) of the Institutes of Technology Act, 1961; or (viii) the Central or any State Government; or (ix) an institution, having importance throughout India or in any State or States, as the Central Government may, by notification, specify in this behalf; or (x) such institute of management, as the Central Government may, by notification, specify in this behalf. C.—Income from house property Income from house property. 20. (1) The annual value of property consisting of any buildings or lands appurtenant thereto, owned by the assessee shall be chargeable to income-tax under the head “Income from house property”. 3 of 1956. 59 of 1961. (2) The provisions of sub-section (1) shall not apply to such portions of the property, as the assessee may occupy for his business or profession, the profits of which are chargeable to income-tax. Determination of annual value. 21. (1) For the purposes of section 20, the annual value of any property shall be deemed to be the higher of the following:— (a) the sum for which it might reasonably be expected to let from year to year; or (b) the actual rent received or receivable by the owner, if the property or any part of it is let. (2) If the property or any part of it is let and was vacant for the whole or any part of the tax year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in sub-section (1)(a), the annual value of such property shall be deemed to be the amount so received or receivable. (3) The annual value of the property shall be reduced by the taxes (including service taxes) levied by a local authority in respect of such property, actually paid during the tax year by the owner, irrespective of when such taxes became payable. (4) The rent which cannot be realised by the owner shall not be included in computing the actual rent received or receivable, subject to the rules as may be made in this behalf. (5) Where a property is held as stock-in-trade and is not let wholly or partly at any time during the tax year, the annual value of such property or part thereof shall be nil for two years from the end of the financial year in which the certificate for completion of construction is obtained from the competent authority. (6) The annual value of the property consisting of a house or any part thereof shall be taken as nil, if the owner occupies it for his own residence or cannot actually occupy it due to any reason. (7) The provisions of sub-section (6)–– (a) shall apply only in respect of two of such houses as specified by the assessee in this behalf; (b) shall not apply, if the house or any part thereof is actually let during any time of the tax year, or if the owner derives any other benefit from it. Deductions from income from house property. 22. (1) The income under the head “Income from house property” shall be computed after making the following deductions:–– (a) 30% of the annual value as determined under section 21; (b) where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital; (c) where the capital referred to in clause (b) is borrowed during any period prior to the tax year in which the property has been acquired or constructed, the amount of any interest payable for the said prior period in five equal instalments for the said tax year and for each of the four immediately succeeding tax years. (2) In case of property or properties referred to in section 21(6), the aggregate amount of deduction under sub-section (1)(b) shall not exceed— (a) ₹ 200000, subject to the following conditions:–– (i) the property has been acquired or constructed with borrowed capital and such acquisition or construction is completed within five years from the end of tax year in which capital was borrowed; (ii) the assessee furnishes a certificate from the person to whom interest is payable on such capital; and (b) ₹30000 in any other case. (3) The deduction under section 22(1)(c) shall be computed after reducing the interest referred to in the said section by any amount already allowed as a deduction under any other provisions of this Act. (4) The certificate referred to in sub-section (2) shall specify–– (a) the amount of interest payable on capital borrowed; and (b) the interest payable on any new loan, where subsequent to the capital borrowed, the assessee has taken any such loan for repayment of whole or any part of such capital. (5) The aggregate of the amounts of deduction under sub-section (2) in respect of properties of the nature referred to in section 21(6) shall not exceed ₹ 200000. (6) Any interest chargeable under this Act which is payable outside India shall not be allowed as a deduction under this section, if— (a) tax has not been paid or deducted on such interest under Chapter XIX-B; and (b) in respect of such interest, there is no agent in India as per section 306. Arrears of rent and unrealised rent received subsequently. 23. (1) The amount of arrears of rent received by an assessee from a tenant, or the unrealised rent realised subsequently from a tenant, shall be deemed to be the income from house property in respect of the tax year in which such rent is received or realised. (2) The amount deemed to be income from house property under sub-section (1) shall be included in the total income of the assessee under the head “Income from house property”, whether the assessee is the owner of the property or not in that tax year. (3) A sum equal to 30% of the arrears of rent or the unrealised rent referred to in sub-section (1) shall be allowed as deduction. Property owned by co-owners. 24. (1) For property co-owned with definite and ascertainable share, the co-owners shall not be assessed as an association of persons and their income computed separately under this Part as per their respective share shall be included in their total income. (2) The relief available under section 21(6) shall be provided as if each co-owner is individually entitled to the said relief. Interpretation. 25. For the purposes of sections 20 to 24, the “owner” in relation to a property or any part thereof shall include–– (a) an individual who transfers without adequate consideration, any property to the spouse (except under an agreement to live apart), or to a minor child (other than a married daughter); (b) the holder of an impartible estate, and he shall be deemed to be an individual owner in respect of all the properties comprised in the estate; (c) a member of a co-operative society, company or other association of persons to whom a building or part thereof is allotted or leased under a house building scheme of the society, company or association; (d) a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882; (e) a person who acquires any rights (excluding any rights by way of a lease from month to month or for a period not exceeding one year) in or with respect to any building or its part— 4 of 1882. (i) by virtue of transfer of such property by way of sale or exchange or original or extendible lease for a term of not less than twelve years; or (ii) accruing or arising from any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement of whatever nature), not being a transaction by way of sale, exchange or lease which has the effect of enabling the enjoyment of such property. D.—Profits and gains of business or profession Income under head “Profits and gains of business or profession”. 26. (1) The incomes referred to in sub-section (2) shall be chargeable to income-tax under the head “Profits and gains of business or profession”. (2) The income under sub-section (1) shall include–– (a) the profits and gains of any business or profession carried on by the assessee at any time during the tax year; (b) any compensation or other payment, due to, or received, by any person by whatever name called,–– (i) wholly or substantially managing the affairs— (A) of an Indian company; or (B) in India, of any other company; or (ii) holding any agency in India for any part of business activities of any other person; or (iii) for any contract relating to business, in connection with termination of management, office, agency or contract, as the case may be, or modification of terms and conditions relating thereto; (c) any compensation or payment, due to, or received by, any person for vesting of the management of any property or business, in the Government including any corporation owned or controlled by the Government under any law in force; (d) income derived by a trade, professional or similar association from specific services performed for its members; (e) profits on sale of import licence, cash assistance against export, duty drawback or duty remission or any other export incentive, received or receivable; (f) the value of any benefit or perquisite arising from business or the exercise of a profession, whether— (i) convertible into money or not; or (ii) in cash or in kind or partly in cash and partly in kind; (g) any interest, salary, bonus, commission or remuneration, by whatever name called, which is due to, or received by, a partner of a firm from such firm to the extent allowed under section 35(e) as a deduction in computing the income of the firm; (h) any sum, received or receivable, in cash or in kind–– (i) under an agreement for not carrying out any activity in relation to any business or profession, not being— (A) any sum received on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business or profession which is chargeable under the head “Capital gains”; (B) any sum received as compensation from the multilateral fund of the Montreal Protocol on Substances that Deplete the Ozone layer under the United Nations Environment Programme, as per the terms of agreement entered into with the Government of India; or (ii) under an agreement for not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature, or information or technique likely to assist in the manufacture or processing of goods or provision for services; (i) any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy; (j) the fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the manner, as may be prescribed; and (k) any sum which is received or receivable in cash or kind, when–– (i) a capital asset other than land or goodwill or financial instrument, is demolished, destroyed, discarded or transferred; and (ii) the whole of the expenditure on it has been allowed as a deduction under section 35AD of the Income-tax Act, 1961 or section 46 of this Act. (3) Where speculative transactions carried on by an assessee are of such nature to constitute a business, the business (herein referred to as speculation business) shall be deemed to be distinct and separate from any other business. (4) Any income from letting out of a residential house or a part of it by the owner shall not be included in income under sub-section (1) and shall be chargeable only under the head “Income from house property”. 27. The income referred to in section 26 shall be computed as per the provisions of sections 28 to 60, except section 58. Manner of computing profits and gains of business or profession. Rent, rates, taxes, repairs and insurance. 28. (1) The following amounts shall be allowed as deduction in respect of premises, machinery, plant or furniture used for the purposes of the business or profession:–– (a) any premium paid in respect of insurance against risk of damage or destruction thereof; (b) land revenue, local rates or municipal taxes paid; (c) rent paid, when the premises are occupied by the assessee as a tenant; (d) amount paid on account of current repairs to the premises, not being in the nature of capital expenditure, when the premises are occupied by the assessee otherwise than as a tenant; (e) amount paid on account of cost of repairs, not being in the nature of capital expenditure, when the premises are occupied by the assessee as a tenant and where he has undertaken to bear the cost of repairs to the premises; and (f) the amount paid on account of current repairs to machinery, plant or furniture, not being in the nature of capital expenditure. (2) In case where the premises, building, machinery, plant or furniture is partly used or not wholly and exclusively used for the purposes of the business or profession, the deduction allowable under sub-section (1) shall be restricted to the fair proportionate part thereof as determined by the Assessing Officer, having regard to the usage for the purposes of the business or profession. 43 of 1961. Deductions related to employee welfare. 29. (1) The following sums, in the case of an assessee being an employer, shall be allowed as deduction in computing income chargeable under section 26:–– (a) any sum paid by way of contribution towards a recognised provident fund or an approved superannuation fund, subject to–– (i) such limits, as may be prescribed, for recognising the provident fund or approving the superannuation fund; and (ii) such conditions, as the Board may specify, for cases where the contributions are not made annually either as fixed amounts, or annual contributions fixed on some definite basis by reference to the income chargeable under the head “Salaries” or the contributions or to the number of members of the fund; (b) any sum paid by way of contribution towards a pension scheme referred to in section 124, for an employee up to 14% of the salary of the employee in the tax year, where such salary includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites; (c) any sum paid by way of contribution towards an approved gratuity fund created by the assessee for the exclusive benefit of his employees under an irrevocable trust; (d) irrespective of anything contained in sub-section (2), any provision made for the purpose of making contribution towards approved gratuity fund or for the purpose of payment of any gratuity that has become payable during the tax year; (e)(i) the amount of contribution received from an employee to which the provisions of section 2(49)(o) apply, if it is credited by the assessee to the account of the employee in the relevant fund or funds by the due date; (ii) for the purposes of sub-clause (i), “due date” means the date by which the assessee is required as an employer to credit employee contribution to the account of an employee in the relevant fund under any Act, rule, order or notification issued under it or under any standing order, award, contract of service or otherwise and the provisions of section 37 shall not apply for determining the “due date” under this clause. (2) (a) Subject to the provisions of sub-section (1)(d), no deduction shall be allowed for any provision made for the payment of gratuity to the employees on their retirement or termination for any reason; and (b) in case deduction has been allowed for any provision made under sub-section (1)(d), then no deduction shall be allowed on actual payment made from such provision. (3) No deduction shall be allowed in respect of any sum paid by the assessee as an employer towards setting up or formation of, or as contribution to, any fund, trust, company, association of persons, body of individuals, society registered under the Societies Registration Act, 1860, or other institution for any purpose, except where such sum is so paid, for the purposes and to the extent provided by or under sub-section (1)(a) or (b) or (c), or as required by or under any other law in force. Deduction on certain premium. 30. The following sums shall be allowed as deduction in computing income chargeable under section 26, being premium paid:–– (a) by any assessee in respect of insurance against risk of damage or destruction of stocks or stores used for the purposes of business or profession; (b) by a federal milk co-operative society to effect or to keep in force an insurance on the life of the cattle owned by a member of a co-operative society, being a primary society engaged in supplying milk raised by its members to such federal milk co-operative society; 21 of 1860. (c) by the assessee as an employer, through any mode of payment other than cash, to effect or to keep in force an insurance on the health of its employees under a scheme framed in this behalf by— (i) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 and approved by the Central Government; or (ii) any other insurer and approved by the Insurance Regulatory and Development Authority established under section 3(1) of the Insurance Regulatory and Development Authority Act, 1999. Deduction for bad debt and provision for bad and doubtful debt. 31. (1) The amount mentioned in column C of the Table below, in respect of any provision for bad and doubtful debts made by the assessee specified in column B thereof, shall be allowed as a deduction in computation of income chargeable under section 26. Table Sl. No. | Specified assessee | Amount of deduction ---|---|--- A | B | C 1. | (a) A scheduled bank, other than a bank incorporated by or under the laws of a country outside India; or (b) a non-scheduled bank; or (c) a co-operative bank, other than— (i) a primary agricultural credit society; or (ii) a primary co-operative agricultural and rural development bank. | (a) not more than 8.5% of the total income of the tax year computed before making any deduction under this clause and Chapter VIII, and an additional amount up to 10% of the aggregate average advances made by rural branches computed in the manner as may be prescribed; (b) for an assessee mentioned in clauses (a) and (b) of column B, at its option, an additional amount in excess of clause (a) of this column but not more than the income from redemption of securities as per a scheme framed by the Central Government, when such income has been disclosed in the return of income under the head “Profits and gains of business or profession”. 2. | (a) A bank incorporated by or under the laws of a country outside India; or (b) a public financial institution or a State Financial Corporation or a State Industrial Investment Corporation; or (c) a non-banking financial company. | Not more than 5% of the total income of a tax year computed before making any deduction under this clause and Chapter VIII. 57 of 1972. 41 of 1999. (2) Any amount of bad debt, or part of it, in the tax year in which such amount is written off as irrecoverable in the accounts of the assessee, shall be allowed as deduction in computation of income chargeable under section 26, subject to the following conditions:–– (a) it has been taken into account in computing the income of the assessee of the tax year in which it is written off, or any earlier tax year, or represents the money lent in the ordinary course of the business of banking or money lending which is carried on by the assessee; (b) if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the tax year in which the ultimate recovery is made; and (c) where it relates to an assessee to which sub-section (1) applies,–– (i) only that amount which exceeds the credit balance in the provision for bad and doubtful debts account made under that sub-section shall be allowed as deduction; (ii) such amount shall be allowed only when the assessee has debited any amount of bad debt or part thereof in that tax year to the provision for bad and doubtful debts account made under that sub-section; and (iii) the aforesaid account shall be only one such account under sub-section (1) and such account shall be related to all types of advances, including advances made by rural branches. (3) For the purposes of sub-section (2),–– (a) any bad debt or part of it written off as irrecoverable shall not include any provision for bad and doubtful debt; (b) any amount of bad debt or part of it, which has been taken into account in computing the income of the assessee of the tax year in which the amount of bad debt or part of it becomes irrecoverable or of an earlier tax year as per income computation and disclosure standards notified under section 276(2) without recording it in the accounts, shall be allowed as a deduction in computing the income of the assessee of the tax year in which it becomes irrecoverable and such bad debt or part of it shall be deemed to be written off as irrecoverable in the accounts for the purposes of sub-section (2). Other deductions. 32. The following amounts shall be allowed as deduction in computing income chargeable under section 26:–– (a) bonus or commission paid to an employee for services rendered, but only when such amount would not have been payable to the employee as profits or dividend if it had not been paid as bonus or commission; (b) interest paid in respect of capital borrowed for the purposes of business or profession, where–– (i) such interest shall not include interest on capital borrowed for acquisition of an asset, whether capitalised in the books of account or not, for any period beginning from the date the capital was borrowed for acquisition of the asset till the date that asset was first put to use; (ii) recurring subscriptions paid periodically by shareholders or subscribers in Mutual Benefit Societies fulfilling the conditions as may be prescribed, shall be deemed to be capital borrowed; (c) contribution paid by a public financial institution to the credit guarantee fund trust for small industries as the Central Government may, by notification, specify; (d) the pro rata amount of discount on a zero coupon bond having regard to the period of life of such bond calculated in the manner, as may be prescribed, where–– (i) “discount” means the difference between the amount received or receivable by the infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank issuing the bond, and the amount payable on maturity or redemption of such bond; (ii) “period of life of bond” means the period commencing from the date of issue of the bond and ending on the date of the maturity or redemption of such bond; (e) the amount carried to a special reserve created and maintained by a specified entity, subject to the following conditions:–– (i)such amountshall not exceed 20% of the profits derived from an eligible business computed under the head “Profits and gains of business or profession” before any deductions under this clause; and (ii) when the aggregate of such amounts carried to such reserve account from time to time exceeds twice the amount of paid-up share capital and of general reserves of the specified entity, no deduction shall be allowable on such excess, and for the purposes of this clause,–– (A) “specified entity” means— (I) a public financial institution as specified in section 2(72) of the Companies Act, 2013; (II) a financial corporation which is a public sector company; (III) a banking company; (IV) a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank; (V) a housing finance company; and (VI) any other financial corporation including a public company; (B) “eligible business” means,— (I) in respect of any of the specified entities referred to in clause (e)(A)(I) to (IV), the business of providing long-term finance for— (a) industrial or agricultural development; (b) development of infrastructure facility in India; or (c) development of housing in India; (II) in respect of the specified entity referred to in clause (e)(A)(V), the business of providing long-term finance for the construction or purchase of houses in India for residential purposes; and (III) in respect of the specified entity referred to in clause (e)(A)(VI), the business of providing long-term finance for development of infrastructure facility in India; (C) “infrastructure facility” means— (I) an infrastructure facility as defined in Explanation to section 80-IA(4)(i) of the Income-tax Act, 1961 or any other public facility of a similar nature as may be notified by the Board in this behalf and which fulfils the conditions as may be prescribed; 18 of 2013. 43 of 1961. (II) an undertaking referred to in section 80-IA(4)(ii) or (iii) or (iv) or (vi) of the Income-tax Act, 1961; and (III) an undertaking referred to in section 80-IB(10) of the Income-tax Act, 1961; (f) any expenditure, not being capital expenditure, incurred by a corporation or a body corporate, by whatever name called, if,— (i) it is constituted or established by a Central Act or State Act or Provincial Act; (ii) it is notified by the Central Government for the purposes of this clause having regard to the objects and purposes of the Act referred to in sub-clause (i); and (iii) the expenditure is incurred for the objects and purposes authorised by the Act under which it is constituted or established; (g) the expenditure incurred by a co-operative society engaged in the business of manufacture of sugar, on purchase of sugarcane at a price equal to or less than the price fixed or approved by the Government; (h) marked to market loss or other expected loss as computed as per the income computation and disclosure standards notified under section 276(2); (i) any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees, subject to the following conditions:–– (A) if such expenditure or any part of it is of capital nature, one-fifth of it shall be deducted for the tax year in which it was incurred and the balance shall be deducted in equal instalments for each of the four immediately succeeding tax years; (B) the provisions of sections 33(11) and 112(3) shall apply to deduction under this clause as they apply in relation to deductions allowable in respect of depreciation; (C) the provisions of sections 38(1)(c), 39(4) (Table: Sl. No. 9), 45(6) and (10), shall apply to an asset representing capital expenditure for promoting family planning, to the extent they apply to an asset representing capital expenditure on scientific research; (j) the amount being difference between the actual cost of animals used for the purposes of the business or profession otherwise than as stock-in-trade and the amount realised from the carcasses or animals, where such animals have died or become permanently useless; and (k) the amount paid as securities transaction tax or commodities transaction tax, if–– (i) the taxable securities transactions or taxable commodities transactions are entered into the course of the business during the tax year; and (ii) the income arising from such taxable securities transactions or taxable commodities transactions is included in the income computed under the head “Profits and gains of business or profession”. Deduction for depreciation. 33. (1) A deduction in respect of depreciation of— (a) buildings, machinery, plant or furniture, being tangible assets; 43 of 1961. 43 of 1961. (b) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st April, 1998, not being goodwill of a business or profession, owned wholly or partly by the assessee and used wholly and exclusively for the purposes of the business or profession, shall be allowed, as per the provisions of this section. (2) In case of assets referred to in sub-section (1) of an undertaking engaged in generation or generation and distribution of power, the deduction in respect of depreciation shall be such percentage of its actual cost to the assessee, as may be prescribed. (3) (a) In case of any block of assets, deduction in respect of depreciation shall be such percentage of its written down value, as may be prescribed; (b) when any building, machinery, plant or furniture is partly, or not wholly and exclusively, used for the purposes of the business or profession, the deduction under clause (a) shall be restricted to the fair proportionate part thereof as determined by the Assessing Officer, having regard to the usage of such building, machinery, plant or furniture for the purposes of the business or profession; (c) when deduction of actual cost in respect of any machinery or plant has been allowed under section 54, no deduction under this sub-section shall be allowed. (4) The deduction under this section shall be restricted to 50% of the prescribed rate, if such asset, being asset referred to in sub-sections (2) and (3) is–– (a) acquired by the assessee during the tax year; and (b) put to use for the purposes of business or profession for less than one hundred and eighty days in that tax year. (5) The aggregate deduction in respect of depreciation allowable to the predecessor and successor in cases of succession under section 70(1)(zd) or (ze) or (zf), or section 313, or to the amalgamating and the amalgamated company in the case of amalgamation, or to the demerged and resulting company in the case of demerger, as the case may be, for any tax year, shall not exceed the deduction calculated at the prescribed rates under this section as if the succession, amalgamation or demerger had not taken place, and such deduction shall be allowed on pro rata basis based on number of days for which assets were used by the following:–– (a) predecessor and successor, in case of such succession; or (b) amalgamating company and the amalgamated company in case of an amalgamation; or (c) demerged company and the resulting company in case of a demerger. (6) Where a building, not owned by the assessee, is held on lease or by any other right of occupancy is used for the purposes of business or profession of the assessee, and if any capital expenditure is incurred by the assessee for the purposes of business or profession on construction of any structure or any work by way of renovation, extension or improvement to such building, then such structure or work shall be treated as a building owned by the assessee for the purposes of this section. (7) The provisions of this section shall apply whether or not the assessee has claimed deduction for depreciation in computing his total income. (8) In addition to deduction under sub-section (3), additional deduction in respect of depreciation for any new machinery or plant shall be allowed, when— (a) the assessee is engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power; (b) the assessee acquires and installs the new machinery or plant; (c) the new machinery or plant is first put to use by the assessee for the purposes of business; and (d) the new machinery or plant (not being a ship or an aircraft)— (i) was not used either within or outside India by any other person before its installation by the assessee; (ii) is not installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (iii) is not in the nature of any office appliances or road transport vehicle; or (iv) is not an asset on which the whole of the actual cost is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income under the head “Profits and gains of business or profession” of any tax year. (9) The additional deduction in respect of depreciation referred to in sub-section (8) shall be–– (a) 20% of the actual cost of the new machinery or plant in the tax year when it is acquired and put to use, subject to the provisions of clause (b); or (b) 10% of the actual cost, if the new machinery or plant is acquired and put to use for less than one hundred and eighty days in the relevant tax year, and 10% of the actual cost shall be allowed in the immediately succeeding tax year. (10) The difference between the written down value and the moneys payable including the scrap value, if any, for any tangible asset in respect of which depreciation is claimed and allowed under sub-section (2), shall be allowed as deduction when— (a) such asset is sold, discarded, demolished or destroyed in the tax year not being the tax year in which it is first put into use; (b) the moneys payable including the scrap value, if any, is less than its written down value; and (c) such deficiency is actually written off in the books of account of the assessee. (11) (a) Where the profits and gains chargeable for the tax year before allowing the deduction under sub-sections (1) to (10) is less than such allowable deduction, then–– (i) if such profits and gains is not a loss, the deduction under sub-sections(1) to (10) shall be allowed to the extent of the available profits and gains; (ii) if such profits and gains is a loss, no deduction under sub-sections (1) to (10) shall be allowed; (b) the amount of deduction which has not been allowed under clause (a) shall be added to the allowable deduction under this section, whether available or not, for the succeeding tax year and the total amount shall be deemed to be eligible for deduction in that year, and so on for the succeeding tax years; and (c) the provisions of this sub-section shall be subject to the provisions of sections 112(3) and 113(4). (12) For the purposes of this section,–– (a) “assets” mean— (i) tangible assets, being buildings, machinery, plant or furniture; (ii) intangible assets being–– (A) know-how; or (B) patents; or (C) copyrights; or (D) trademarks; or (E) licences; or (F) franchises; or (G) any other similar business or commercial rights, but not being goodwill of a business or profession; (b) “know-how” means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto); (c) “sold” includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company or in a scheme of amalgamation of a banking company, as referred to in section 5(c) of the Banking Regulation Act, 1949 with a banking institution as referred to in section 45(15) of the said Act, sanctioned and brought into force by the Central Government under section 45(7) of that Act, of any asset by the banking company to the banking institution; (d) “written down value of the block of assets” shall have the same meaning as in section 41(1)(c). General conditions for allowable deductions. 34. (1) Any expenditure (not being an expenditure of the nature specified in sections 28 to 33, 44 to 49, 51and 52 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”. (2) For the purposes of sub-section (1), an expenditure laid out or expended wholly and exclusively for business or profession by the assessee shall not include any of the following:–– (a) an expenditure incurred for any purpose which is an offence or is prohibited by law; or (b) an expenditure incurred on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013; or (c) an expenditure incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by a political party. (3) The expenditure mentioned in sub-section (2)(a) shall include expenditure incurred for–– (a) any purpose which is an offence under, or is prohibited by, any law in force in or outside India; or (b) providing a benefit or perquisite in any form to a person, who may or may not be carrying on a business or exercising a profession, when its acceptance by the person is in violation of any law or rule or regulation or guideline governing the conduct of that person; or 10 of 1949. 18 of 2013. (c) compounding an offence under any law in force in or outside India; or (d) settling proceedings initiated in relation to contravention under any law notified by the Central Government in this behalf. Amounts not deductible in certain circumstances. 35. Irrespective of any other provision of Chapter IV-D, the following amounts shall not be allowed as deduction in computing the income chargeable under the head “Profits and gains of business or profession”:— (a) any amount on account of–– (i) tax paid on income; or (ii) tax paid by employer referred to in Schedule III (Table: Sl. No. 10); or (iii) tax paid in any other country for which relief is eligible under section 159 or 160, and shall include any surcharge or cess on such tax, by whatever name called; (b)(i) 30% of any sum payable to a resident, on which tax is deductible at source under Chapter XIX-B and during the tax year, such tax has not been deducted or, after deduction, has not been paid up to the due date specified in section 263(1), so, however, that— (A) where in respect of any such sum, tax is deducted in any subsequent year, or is deducted during the tax year but paid after the due date specified in section 263(1), 30% of such sum shall be allowed as a deduction in computing the income of the tax year, in which such tax has been paid; (B) where the assessee is required to and fails to deduct whole or any part of the tax under Chapter XIX-B on any such sum but he is not deemed to be an assessee in default under section 398(2), then for the purposes of this sub-clause, the assessee shall be deemed to have deducted and paid the tax on such sum on the date on which the return has been filed by the payee referred to in section 398(2); (ii) any interest, royalty, fees for technical services or other sum chargeable under this Act which is payable–– (A) outside India; or (B) in India to a non-resident (which is not a company) or to a foreign company, on which tax is deductible at source under Chapter XIX-B and during the tax year, such tax, has not been deducted or after deduction, has not been paid up to the due date specified in section 263(1), so, however, that –– (I) Where in respect of any such sum, tax is deducted in any subsequent year, or is deducted during the tax year but paid after the due date specified in section 263(1), such sum shall be allowed as a deduction in computing the income of the tax year, in which such tax has been paid; (II) where the assessee is required to and fails to deduct whole or any part of the tax under Chapter XIX-B on any such sum but he is not deemed to be an assessee in default under section 398(2), then for the purposes of this sub-clause the assessee shall be deemed to have deducted and paid the tax on such sum on the date on which the return has been filed by the payee as referred to in section 398(2); (iii) any payment to a provident or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source under Chapter XIX-Bfrom any payments made from the fund which are chargeable to tax under the head “Salaries”; (c) any payment chargeable under the head “Salaries”, payable outside India or to a non-resident on which tax is deductible at source under Chapter XIX-B and such tax has not been deducted or, after deduction, has not been paid; (d) any amount–– (i) paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or (ii) which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government; (e) the expenditure incurred by a firm, assessable as such–– (i) in the nature of salary, bonus, commission or remuneration, by whatever name called (herein referred as remuneration) to a partner, who is not a working partner; or (ii) on the remuneration to a working partner, and interest to any partner, if it is–– (A) not authorised by the partnership deed applicable for the period for which such remuneration or interest is paid; or (B) authorised by and is as per the terms of partnership deed but relates to the period prior to the date of such partnership deed, or which was not authorised by the earlier partnership deed; or (iii) on the aggregate remuneration to all working partners as authorised by the partnership deed, exceeding the amount computed as under:–– (A) on the first ₹600000 of the book profit or in case of a loss, ₹300000 or at the rate of 90% of the book profit, whichever is higher; (B) on the balance of the book profit, at the rate of 60%; or (iv) on interest to any partner as authorised by the partnership deed, exceeding 12% simple interest per annum, so, however, that— (A) where an individual is a partner in a firm, on behalf, or for the benefit, of any other person (such partner and the other person being herein referred to as “partner in a representative capacity” and “person so represented”, respectively),— (I) interest paid by the firm to such individual otherwise than as partner in a representative capacity,shall not be taken into account for the purposes of this clause; (II) interest paid by the firm to such individual as partner in a representative capacity and interest paid by the firm to the person so represented shall be taken into account for the purposes of this clause; (B) where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person; (v) in this clause–– (A) “book profit” means the net profit, as shown in the profit and loss account for the relevant tax year, computed as per Chapter IV-D as increased by the aggregate amount of the remuneration to all the partners of the firm, if such amount has been deducted while computing the net profit; (B) “working partner” means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner; (f) the expenditure incurred by an association of persons or a body of individuals (other than a company, or a co-operative society or society registered under the Societies Registration Act, 1860, or under any law corresponding to that Act in force in any part of India) in the nature of interest, salary, bonus, commission or remuneration, by whatever name called, made to a member of such association or body, provided that— (i) where the interest has been paid by the association or the body to its member and such member has also paid interest to the association or the body, then only such excess interest, if any, paid by the association or body shall not be allowed under this clause; (ii) where an individual is a member of an association or a body on behalf, or for benefit of any other person, such member and any other person shall be referred as “representative member” and “person so represented”, respectively, then, the provisions of this clause–– (A) shall not be applicable in respect of interest paid to or received from, such individual otherwise than in his capacity as a representative member; (B) shall be applicable in respect of interest paid to or received from, an individual in his capacity as a representative member and, the person so represented; (C) shall not be applicable in respect of interest paid to a member, otherwise than as representative member, on behalf or for the benefit of any other person. Expenses or payments not deductible in certain circumstances. 36. (1) The provisions of this section shall have effect irrespective of anything to the contrary contained in any other provision of this Act relating to computation of income under the head “Profits and gains of business or profession”. (2) If the assessee incurs any expenditure for which payment has been or is to be made to any “specified person”, which in the opinion of the Assessing Officer is excessive or unreasonable having regard to the–– (a) fair market value of the goods, services or facilities; or (b) legitimate needs of the business or profession of the assessee; or (c) benefit derived by or accruing to the assessee therefrom, so much of the expenditure as considered excessive or unreasonable by him shall not be allowed as a deduction. 21 of 1860. (3) For the purposes of sub-section (2) and this sub-section,–– (a) “specified person” shall mean the following,–– (i) in relation to an assessee mentioned in column B of the Table below, the person referred to in column C thereof:— Table Sl. No. | Assessee | Specified person ---|---|--- A | B | C 1. | Individual. | Any relative of the assessee. 2. | Company. | Any director of the company or his relative. 3. | Firm. | Partner of the firm or his relative. 4. | Association of persons. | Member of the association or his relative. 5. | Hindu undivided family. | Member of the family or his relative; (ii) any person being an individual or company or firm or association of persons or Hindu undivided family having substantial interest in the business or profession of the assessee, or any director, partner, member thereof or any relatives of such individual, director, partner, member or any other company in which the first mentioned company has substantial interest; (iii) a company, firm, association of persons, or Hindu undivided family whose director, partner or member has substantial interest in the business or profession of the assessee, or any director, partner or member thereof and their relatives, as the case may be; (iv) any person carrying on a business or profession, where assessee, being–– (A) an individual or his relative; or (B) a company, its directors or their relatives; or (C) a firm, its partners or their relatives; or (D) an association of persons, its members or their relatives; or (E) a Hindu undivided family, its members or their relatives, has substantial interest in the business or profession of such person; (b) a person is deemed to have “substantial interest in the business or profession” if— (i) in a case where the business or profession is carried on by a company, such person is, at any time during the tax year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than 20% of the voting power; and (ii) in any other case, such person is, at any time during the tax year, beneficially entitled to not less than 20% of the profits of such business or profession. (4) Where in respect of any expenditure incurred by the assessee, any payment or aggregate of payments made in a day to a person exceeds ₹10000 and is not made through specified banking or online mode, then the expenditure by way of such payments shall not be allowed as a deduction. (5) Where any deduction was made in any preceding tax year for a liability incurred for any expenditure and payment in respect of such liability is made during a subsequent tax year and if such payment or aggregate of payments made in a day to a person exceeds ₹10000 and is not made through specified banking or online mode, such payment shall be deemed to be the income under the head “Profits and gains of business or profession” in such subsequent tax year. (6) For the purposes of sub-sections (4) and (5), the figures “₹10000” shall be read as “₹35000” in case the payment is made for plying, hiring or leasing of goods carriages. (7) The provisions of sub-sections (4) and (5) shall not be applicable in cases and circumstances, as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. (8) Nothing (with reference to mode of payment) contained in any other law in force or in any contract, shall apply in respect of any payment which has been made through specified banking or online mode, in compliance of sub-sections (4) to (7), and no plea shall be allowed to be raised, in any suit or other proceeding on the ground that the payment was not made or tendered in cash or in mode other than through specified banking or online mode. (9) No deduction or allowance shall be allowed in respect of marked to market loss or other expected loss, except as allowable under section 32(1)(h). Certain deductions allowed on actual payment basis only. 37. (1) The sums payable, as specified in sub-section (2), which are otherwise allowable as a deduction under this Act, shall be allowed as a deduction while computing the income chargeable under section 26 only in the tax year in which such sums are actually paid irrespective of–– (a) any provision to the contrary in this Act; or (b) method of accounting regularly followed; or (c) the tax year in which the liability was incurred. (2) The sums payable for the purposes of sub-section (1), shall be–– (a) tax, duty, cess, surcharge or fee, by whatever named called, levied under any law in force; (b) contribution of the employer to a provident fund or superannuation fund or gratuity fund or any fund for the welfare of employees; (c) amount payable by employer in lieu of any leave at the credit of the employee; (d) any sum referred to in section 32(a); (e) interest on loans or advances or borrowings from specified financial entities as per the terms and conditions of the agreement governing such loans or advances or borrowings; (f) amount payable to the Indian Railways for use of railway assets; or (g) amount payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006. (3) In case the amounts specified in sub-section (2), except the sum referred to in clause (g) thereof, are paid after the end of the tax year in which the liability was incurred, but on or before the due date of filing of return of income under section 263(1) for such tax year, the deduction towards such sum shall be allowed in such tax year. (4) If interest on loans or advances or borrowings specified in sub-section (2)(e) is converted into a loan or advance or debenture or any other instrument by which the liability to pay is deferred to a future date, then it shall not be deemed to have been actually paid. (5) If a deduction in respect of any sum payable under sub-section (2) has already been allowed in any tax year when such liability was incurred, it shall not be allowed again in any subsequent tax year when it is paid. (6) The provisions of this section shall not apply to a sum received by the assessee from any employee as contribution towards any of the funds referred to in section 2(49)(o). (7) For the purposes of this section, “specified financial entities” means a public financial institution or State Financial Corporation or State Industrial Investment Corporation or such class of non-banking financial companies as may be notified by the Central Government or a scheduled bank or a co-operative bank (other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank). (8) For the purposes of sub-section (2)(a), “the sum payable” means a sum for which the assessee hasincurred liability in the tax year even though such sum might not have been payable within that year under the relevant law. Certain sums deemed as profits and gains of business or profession. 38. (1) The following sums shall be deemed to be profits and gains of business or profession and shall be chargeable to income-tax, in the manner specified below, subject to the provisions of sub-section (2):–– (a) where an allowance or deduction has been allowed in respect of any loss, expenditure or trading liability incurred by the assessee during any tax year, then,— (i) the value of any benefit accruing to the assessee by way of cessation or remission of such trading liability, including a unilateral act of write-off of such liability in his accounts, in a subsequent tax year in which such benefit accrues; or (ii) any amount obtained by the assessee, whether in cash or otherwise, in respect of such loss or expenditure incurred, in subsequent tax year in which the amount is obtained, whether the business or profession in respect of which the allowance or deduction was made is in existence in such subsequent tax year or not; (b) in a case where any tangible asset [as referred to in section 33(12)(a)(i)], which is owned by assessee, is sold, discarded, demolished or destroyed, and the moneys payable for such asset, together with the scrap value [A] exceeds the written down value of such assets [C], the sum as computed below, in the tax year in which the moneys payable for such asset becomes due–– (i) where the moneys payable for such asset together with the scrap value [A] is less than the actual cost of such asset [B], then— [A] – [C]; or (ii) in any other case,— [B] – [C]; 27 of 2006. (c) in a case where an asset representing expenditure of a capital nature on scientific research, referred to in section 45(1)(a)(i) is sold, without having been used for other purposes, and the sale proceeds together with the total deductions allowed under that section exceed the amount of capital expenditure, the excess or the amount of deduction so made, whichever is less, in the tax year in which the asset was sold; (d) in a case where a deduction has been allowed for a bad debt (or part of it) under the provisions of section 31(2), and any amount subsequently recovered exceeds the difference between such debt and the amount allowed, then the amount in excess, in the tax year in which recovery is made; (e) in a case where a deduction has been allowed for any special reserve created and maintained under the provisions of section 32(e), any amount subsequently withdrawn from such reserve, in the tax year in which the amount is withdrawn. (2) The provisions of sub-section (1) shall apply subject to fulfilment of the following conditions:— (a) in respect of sub-section (1)(a), only when an allowance or deduction has been made in assessment for any tax year towards the trading liability, loss or expenditure incurred; (b) in respect of sub-section (1)(b), only when the asset owned by the assessee, has been used for the purpose of business or profession, and depreciation has been claimed and allowed thereon under section 33(2); (c) in respect of sub-section (1)(c), only when the asset has not been used for other purposes. (3) Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-section (1)(a), (c), (d) or (e), in respect of that business or profession, any loss, not being a loss sustained in speculation business, which arose in that business or profession during the tax year in which it ceased to exist and which could not be set off against any other income of that tax year shall, so far as may be, be set off against the income chargeable to tax under the said clauses of that sub-section. (4) In respect of sums referred to in sub-section (1)(a), if the benefit referred therein accrues to, or amount referred therein is obtained, by the successor in business, the value of the benefit or the amount shall be chargeable to income-tax as income in the hands of successor in business. (5) The provisions of sub-section (1)(b), (c), (d) and (e) shall apply in a tax year even if the business is no longer in existence. (6) For the purposes of this section,–– (a) “sold” includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company; (b) “successor in business” means–– (i) the amalgamated company, where there has been an amalgamation; (ii) the resulting company, where there has been a demerger; (iii) where the assessee is succeeded by any other person in that business or profession, that other person; (iv) where a firm carrying on a business or profession is succeeded by another firm, that other firm. Computation of actual cost. 39.(1) The actual cost of an asset used for the purposes of the business or profession shall be the actual cost to the assessee, as reduced by the following amounts:— (a) part of cost of asset, if any, met by any other person or authority, directly or indirectly; (b) goods and services tax paid in respect of which credit of input tax has been claimed and allowed under the relevant law; (c) duty of excise or additional duty leviable under section 3 of the Customs Tariff Act, 1975 in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944; (d) subsidy, grant or reimbursement, by whatever name called, if any, relatable to the acquisition of the asset, received, directly or indirectly, by the assessee from— (i) the Central Government; (ii) a State Government; (iii) any authority established under any law; or (iv) any other person. (2) The payment or aggregate of payments exceeding ₹10000 in a day for acquisition of an asset or part thereof, made to a person in a mode otherwise than by specified banking or online mode, shall be excluded from the actual cost of that asset. (3) In a case where the subsidy, grant or reimbursement referred to in sub-section (1)(d) is not directly relatable to the asset acquired, the amount of reduction under sub-section (1)(d) shall be determined as under: A × (B/C) where,— A = total amount of subsidy, grant or reimbursement not directly relatable to the asset; B = cost of the asset acquired for which actual cost is to be determined; C = cost of all the assets in respect of or in reference to which the subsidy or grant or reimbursement is so received. (4) In circumstances specified under column B of the Table below, the actual cost of the asset shall be as specified in column C thereof. Table Sl. No. | Specified circumstances | Determination of actual cost ---|---|--- A | B | C 1. | Where capital asset is transferred by an amalgamating company to an amalgamated company being an Indian company in a scheme of amalgamation. | Actual cost to amalgamated company shall be the same as it would have been if the amalgamating company had continued to hold such capital asset for the purpose of its own business. 2. | Where capital asset is transferred by a demerged company to a resulting company being an Indian company in a demerger. | Actual cost to resulting company shall be the same as it would have been, if the demerged company had continued to hold such asset for the purpose of its own business, which shall not exceed the written down value of such capital asset in the hands of demerged company. 51 of 1975. A B C 3. | Where inventory is converted into or treated as a capital asset. | Fair Market Value of such inventory as on date of conversion, as determined in the manner as may be prescribed. 4. | Where asset is acquired by the assessee by way of gift or inheritance. | Actual cost to the previous owner as reduced by— (a) depreciation actually allowed in respect of tax year commencing on 1st April, 1986 or any earlier tax year; and (b) depreciation allowable for tax year commencing on or after 1st April,1987 under this Act or under the Income-tax Act, 1961(43 of 1961), as if such asset was the only asset in the relevant block of asset. 5. | Where a building, being the property of the assessee, is put to use for the purpose of business or profession during the tax year. | Actual cost of the building as reduced by the depreciation— (a) that would have been allowable had the building been used for the purpose of business or profession from the date of acquisition; and (b) calculated at the rate in force on the date on which such asset was put to use for the purpose of business or profession. 6. | Where capital asset is transferred by— (a) a holding company to its subsidiary company; or (b) a subsidiary company to its holding company, and the conditions of section 70(1)(c) and (d), as the case may be, are satisfied. | Actual cost to the transferee company shall be the same as it would have been, if the transferor company had continued to hold such asset for the purpose of its own business. 7. | Where an asset, which previously belonged to the assessee and had been used by him for the purpose of his business or profession, is reacquired by the assessee. | (a) Actual cost of the asset in the hands of assessee, when it was first acquired, as reduced by— (i) depreciation actually allowed in respect of tax year commencing on 1st April,1986 or any earlier tax year; and (ii) depreciation allowable for tax year commencing on or after 1st April, 1987 under this Act or under the Income-tax Act, 1961(43 of 1961), as if such asset was the only asset in the relevant block of asset; or (b) actual price for which such asset is reacquired by the assesse, whichever is lower. A B C 8. | Where an asset is acquired by the assessee from previous owner and subsequently asset is given back to the previous owner by way of lease, hire or otherwise, and— (a) the asset was being used for the purpose of business or profession by the previous owner; and (b) depreciation has been claimed by the previous owner. | Actual cost of asset to the assessee shall be the written down value of the asset in the hands of the previous owner at the time of transfer by the previous owner. 9. | Where an asset is used in business after it ceases to be used for scientific research related to that business and a deduction is allowable under section 33(3). | Actual cost of asset as reduced by deduction allowed for the capital asset under section 45(1)(a)(i) or under section 35(1)(iv) of the Income-tax Act, 1961(43 of 1961). 10. | Where the assessee had acquired an asset outside India, as a non resident, and the asset is brought by him to India and put to use in his business or profession in India. | Actual cost of the asset as reduced by the depreciation–– (a) that would have been allowable had the asset been used for the purpose of business or profession in India since the date of its acquisition; and (b) calculated at the rate in force. 11. | Where capital asset is acquired under the scheme of corporatisation of a recognised stock exchange approved by the Securities and Exchange Board of India. | Actual cost of the asset, as if there was no corporatisation. 12. | (a) Where deduction under section 46 was allowed or allowable in respect of the capital asset— (i) to the assessee; or (ii) to any person and the assessee acquires or receives such asset through special modes of acquisition from such person. (b) Where deduction allowed under section 46 in respect of a capital asset becomes deemed income as per section 46(9)(b). | (a) Actual cost shall be deemed to be nil. (b) Actual cost of the asset as reduced by the depreciation,— (i) that would have been allowable had the asset been used for the purpose of business since date of acquisition; and (ii) calculated at the rate in force. 13. | Where any amount is paid or payable as interest in connection with the acquisition of an asset. | Actual cost shall not include so much of such amount as is relatable to any period after such asset is first put to use. (5) Irrespective of anything contained in sub-section (4), other than serial number 8 of the Table in the said sub-section, in a case where the asset is acquired by the assessee, its actual cost shall be such amount as may be determined by the Assessing Officer having regard to all the circumstances of the case, where— (a) the asset was used by any other person for the purposes of his business, before such acquisition; and (b) the Assessing Officer is satisfied that the main purpose of the transfer of the asset, directly or indirectly, was to reduce tax liability (by claiming depreciation on enhanced actual cost). (6) The determination of actual cost under sub-section (5) shall be made with the prior approval of the Joint Commissioner. (7) For the purposes of this section, “special modes of acquisition” means acquisition— (a) by way of a gift or will or an irrevocable trust; or (b) upon distribution on the liquidation of a company; or (c) by such mode of transfer as is referred to in section 70(1)(a), (c), (d), (e), (j), (zd), (ze) and (zf). Special provision for computation of cost of acquisition of certain assets. 40. (1) For the purposes of computation of income under the head “Profits and gains of business or profession”, cost of acquisition of an asset which becomes property of–– (a) an amalgamated company under a scheme of amalgamation; or (b) an assessee, under a gift, or will, or an irrevocable trust, or on total or partial partition of a Hindu undivided family, when sold as stock-in-trade shall be the sum of— (i) cost of acquisition of the said asset in the hands of the amalgamating company in case of clause (a), or the transferor or donor in case of clause (b); (ii) any cost of improvement made; (iii) any expenditure incurred by the amalgamating company or transferor or donor, as the case may be, wholly and exclusively in connection with such transfer. (2) This section shall not apply to an asset referred to in section 67(6). Written down value of depreciable asset. 41. (1) For the purposes of computation of income under the head “Profits and gains of business or profession”, written down value means— (a) in case the asset is acquired in the tax year, the actual cost to the assessee; (b) in case the asset is acquired before the tax year, actual cost to the assessee less depreciation actually allowed under this Act or under the Income-tax Act, 1961; (c) in case of block of assets, the written down value computed in the following manner: [(A-D) + B-C]-E, where A = the written down value of the block of assets in the immediately preceding tax year; B = actual cost of any asset falling within that block, acquired during the tax year; C = moneys payable together with scrap value, if any, in respect of any asset falling within the block, which is sold, transferred, demolished, destroyed or discarded during the tax year, where “C” shall not exceed (A-D)+B; 43 of 1961. D = depreciation actually allowed in respect of block of assets in relation to the said immediately preceding tax year; E = in the case of a slump sale, the actual cost of the asset falling within that block as reduced by— (i) depreciation actually allowed in respect of tax year commencing on 1st April, 1986 or any earlier tax year; and (ii) depreciation allowable for tax year commencing on or after 1st April, 1987 under this Act or under the Income-tax Act, 1961, as if such asset was the only asset in the relevant block of asset. (2) Where any block of asset is transferred by— (a) a holding company to its subsidiary company and the conditions of section 70(1)(c) are satisfied; (b) a subsidiary company to its holding company and the conditions of section 70(1)(d) are satisfied; or (c) amalgamating company to the amalgamated company being an Indian company, then the actual cost of the block of assets, irrespective of anything contained in section 39, in the hands of transferee company or amalgamated company, as the case may be, shall be the same as written down value of the block of assets as in the case of the transferor company or the amalgamating company in the immediately preceding tax year as reduced by depreciation actually allowed in respect of that block of asset in relation to that tax year. (3) Where any asset, forming part of a block of assets is transferred by a demerged company to a resulting company, the written down value of block of assets of demerged company for the immediately preceding tax year, shall be reduced by the written down value of the assets transferred to the resulting company pursuant to such demerger. (4) Where any asset, forming part of a block of assets is transferred by a demerged company to a resulting company then the actual cost of the block of assets, irrespective of anything contained in section 39, for resulting company shall be the written down value of the assets transferred from the demerged company immediately before such demerger. (5) Where any block of assets is transferred by a private company or unlisted public company to a limited liability partnership and the conditions in section 70(1)(ze) are satisfied, then the actual cost of the block of assets, irrespective of anything contained in section 39, in the hands of limited liability partnership shall be written down value in the hands of said company as on the date of conversion of the company into limited liability partnership. (6) Where any asset forming part of the block of assets is transferred to a company under the scheme of corporatisation of a recognised stock exchange in India approved by the Securities and Exchange Board of India, the written down value of the block of assets in the hands of such company, shall be the written down value of the assets transferred immediately before such transfer. (7) In a case of succession in business or profession under section 313, where an assessment is made in the hands of successor under section 313(2), the written down value of any asset or block of assets shall be the amount which would have been taken as its written down value, if the assessment had been made directly on the person succeeded to. 43 of 1961. (8) For the purposes of this section, any allowance in respect of any depreciation carried forward under section 33(11) shall be deemed to be the depreciation actually allowed. (9) Where an assessee was not required to compute his total income for the purposes of this Act for any tax year or tax years preceding the tax year under consideration,— (a) the actual cost of an asset shall be adjusted by the amount attributable to the revaluation of such asset, if any, in the books of account; (b) the total amount of depreciation on such asset provided in the books of account of the assessee in respect of such tax year or tax years preceding the tax year under consideration shall be deemed to be the depreciation actually allowed under this Act for the purposes of this clause; and (c) the depreciation actually allowed under clause (b) shall be adjusted by the amount of depreciation attributable to such revaluation of the asset. (10) For the purposes of this section, where the income of an assessee is derived, in part from agriculture and in part from business chargeable to income-tax under the head “Profits and gains of business or profession”, for computing the written down value of assets acquired before the tax year, the total amount of depreciation shall be computed as if the entire income is derived from the business of the assessee under the head “Profits and gains of business or profession” and the depreciation so computed shall be deemed to be the depreciation actually allowed under this Act or under the Income-tax Act, 1961. (11) For the purposes of this section, the term “sold” shall have the meaning assigned to it in section 38(6)(a). Capitalising impact of foreign exchange fluctuation. 42. (1) Irrespective of anything contained in any other provision of this Act, where at the time of making payment during the tax year, there is a variation in liability of an assessee as expressed in Indian currency, due to change in rate of exchange, in relation to an asset acquired for the purpose of business or profession from a country outside India, it shall be dealt with in the manner specified in sub-sections (2) and (3). (2) For this section, the liability shall exclude any part met directly or indirectly by any other person or authority and the “variation in liability” shall be computed as— A = B-C where,— A = variation in liability; B = payment expressed in Indian currency at the time when it is made— (a) towards the whole or part of the cost of asset; or (b) towards repayment of the whole or part of the moneys borrowed, directly or indirectly, along with interest in foreign currency, specifically for acquiring such asset; C = liability, corresponding to the amount referred in B, in Indian currency at the time of acquisition of such asset. (3) The variation in liability shall be added or reduced from the— (a) actual cost of the asset as referred in section 39; or (b) expenditure of capital nature referred to in section 32(i) or 45(1)(a)(i); or (c) cost of acquisition of a capital asset (not being a capital asset referred to in section 74) for the purpose of section 72, 43 of 1961. and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset. (4) Where the assessee has entered into a contract with an authorised dealer as defined in section 2 of the Foreign Exchange Management Act, 1999, for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the said liability, the amount, if any, to be added to, or deducted from, the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this section shall, in respect of so much of the sum specified in the contract as is available for discharging the said liability, be computed with reference to the rate of exchange specified therein. Taxation of foreign exchange fluctuation. 43. (1) Subject to the provisions of section 42, any gain or loss arising on account of change in foreign exchange rates on foreign currency transactions shall be treated as income or loss, as the case may be, and shall be computed as per the income computation and disclosure standards notified under section 276(2). (2) The provisions of sub-section (1) shall be applicable to all foreign currency transactions, including those relating to— (a) monetary items and non-monetary items; (b) translation of financial statements of foreign operations; (c) forward exchange contracts; and (d) foreign currency translation reserves. Amortisation of certain preliminary expenses. 44. (1) If an assessee, being an Indian company or a person (other than a company), who is resident in India, incurs any expenditure specified in sub-section (2)— (a) before the commencement of its business; or (b) after the commencement of its business, in connection with the extension of its undertaking or in connection with its setting up a new unit, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive tax years beginning with— (i) the tax year in which the business commences, for clause (a); or (ii) the tax year in which the extension of the undertaking is completed or the new unit commences production or operation, for clause (b). (2) The expenditure referred to in sub-section (1) shall be— (a) the expenditure in connection with— (i) preparation of feasibility report; (ii) preparation of project report; (iii) conducting market survey or any other survey necessary for the business; (iv) engineering services relating to the business; (b) legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business; (c) in addition to expenditure in clauses (a) and (b), if the assessee is a company,— (i) legal charges for drafting and printing of the Memorandum and Articles of Association of the company; 42 of 1999. (ii) fees for registering the company under the provisions of the Companies Act, 2013; (iii) expenditure in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; and (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act), as may be prescribed. (3) In relation to expenditure specified in sub-section (2)(a), the assessee shall furnish a statement containing the particulars of the expenditure in such form and manner, as may be prescribed. (4) The allowable deduction under sub-section (1) in respect of aggregate of expenditure referred to in sub-section (2) shall be restricted to 5%— (a) of the cost of the project; or (b) of the capital employed in the business of the company, where the assessee is an Indian company, at its option. (5) For the purposes of this section,— (a) “cost of the project” means the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings) and— (i) for cases under sub-section (1)(a), the actual cost as shown in the books of the assessee as on the last day of the tax year in which the business commences; (ii) for cases under sub-section (1)(b), the actual cost as shown in the books of the assessee as on the last day of the tax year in which either the extension of the undertaking is completed, or the new unit commences production or operations, as the case may be, in so far as such fixed assets have been acquired or developed in connection with the extension of the undertaking or setting up of new unit; (b) “capital employed in the business of the company” means— (i) in cases under sub-section (1)(a), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the tax year in which the business of the company commences; (ii) in a case under sub-section (1)(b), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the tax year in which the extension of the undertaking is completed or, as the case may be, the new unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the undertaking or the setting up of the new unit of the company; (c) “long-term borrowings” means— (i) any moneys borrowed by the company from Government or Industrial Finance Corporation of India Limited or any other financial institution which is eligible for deduction under section 32(e) or any banking institution (not being a financial institution referred to above); or (ii) any moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of capital plant and machinery, where the tenure of moneys borrowed or debt is not less than seven years. 18 of 2013. (II) an undertaking referred to in section 80-IA(4)(ii) or (iii) or (iv) or (vi) of the Income-tax Act, 1961; and (III) an undertaking referred to in section 80-IB(10) of the Income-tax Act, 1961; (f) any expenditure, not being capital expenditure, incurred by a corporation or a body corporate, by whatever name called, if,— (i) it is constituted or established by a Central Act or State Act or Provincial Act; (ii) it is notified by the Central Government for the purposes of this clause having regard to the objects and purposes of the Act referred to in sub-clause (i); and (iii) the expenditure is incurred for the objects and purposes authorised by the Act under which it is constituted or established; (g) the expenditure incurred by a co-operative society engaged in the business of manufacture of sugar, on purchase of sugarcane at a price equal to or less than the price fixed or approved by the Government; (h) marked to market loss or other expected loss as computed as per the income computation and disclosure standards notified under section 276(2); (i) any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees, subject to the following conditions:–– (A) if such expenditure or any part of it is of capital nature, one-fifth of it shall be deducted for the tax year in which it was incurred and the balance shall be deducted in equal instalments for each of the four immediately succeeding tax years; (B) the provisions of sections 33(11) and 112(3) shall apply to deduction under this clause as they apply in relation to deductions allowable in respect of depreciation; (C) the provisions of sections 38(1)(c), 39(4) (Table: Sl. No. 9), 45(6) and (10), shall apply to an asset representing capital expenditure for promoting family planning, to the extent they apply to an asset representing capital expenditure on scientific research; (j) the amount being difference between the actual cost of animals used for the purposes of the business or profession otherwise than as stock-in-trade and the amount realised from the carcasses or animals, where such animals have died or become permanently useless; and (k) the amount paid as securities transaction tax or commodities transaction tax, if–– (i) the taxable securities transactions or taxable commodities transactions are entered into the course of the business during the tax year; and (ii) the income arising from such taxable securities transactions or taxable commodities transactions is included in the income computed under the head “Profits and gains of business or profession”. Deduction for depreciation. 33. (1) A deduction in respect of depreciation of— (a) buildings, machinery, plant or furniture, being tangible assets; 43 of 1961. 43 of 1961. (b) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st April, 1998, not being goodwill of a business or profession, owned wholly or partly by the assessee and used wholly and exclusively for the purposes of the business or profession, shall be allowed, as per the provisions of this section. (2) In case of assets referred to in sub-section (1) of an undertaking engaged in generation or generation and distribution of power, the deduction in respect of depreciation shall be such percentage of its actual cost to the assessee, as may be prescribed. (3) (a) In case of any block of assets, deduction in respect of depreciation shall be such percentage of its written down value, as may be prescribed; (b) when any building, machinery, plant or furniture is partly, or not wholly and exclusively, used for the purposes of the business or profession, the deduction under clause (a) shall be restricted to the fair proportionate part thereof as determined by the Assessing Officer, having regard to the usage of such building, machinery, plant or furniture for the purposes of the business or profession; (c) when deduction of actual cost in respect of any machinery or plant has been allowed under section 54, no deduction under this sub-section shall be allowed. (4) The deduction under this section shall be restricted to 50% of the prescribed rate, if such asset, being asset referred to in sub-sections (2) and (3) is–– (a) acquired by the assessee during the tax year; and (b) put to use for the purposes of business or profession for less than one hundred and eighty days in that tax year. (5) The aggregate deduction in respect of depreciation allowable to the predecessor and successor in cases of succession under section 70(1)(zd) or (ze) or (zf), or section 313, or to the amalgamating and the amalgamated company in the case of amalgamation, or to the demerged and resulting company in the case of demerger, as the case may be, for any tax year, shall not exceed the deduction calculated at the prescribed rates under this section as if the succession, amalgamation or demerger had not taken place, and such deduction shall be allowed on pro rata basis based on number of days for which assets were used by the following:–– (a) predecessor and successor, in case of such succession; or (b) amalgamating company and the amalgamated company in case of an amalgamation; or (c) demerged company and the resulting company in case of a demerger. (6) Where a building, not owned by the assessee, is held on lease or by any other right of occupancy is used for the purposes of business or profession of the assessee, and if any capital expenditure is incurred by the assessee for the purposes of business or profession on construction of any structure or any work by way of renovation, extension or improvement to such building, then such structure or work shall be treated as a building owned by the assessee for the purposes of this section. (7) The provisions of this section shall apply whether or not the assessee has claimed deduction for depreciation in computing his total income. (8) In addition to deduction under sub-section (3), additional deduction in respect of depreciation for any new machinery or plant shall be allowed, when— (a) the assessee is engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power; (b) the assessee acquires and installs the new machinery or plant; (c) the new machinery or plant is first put to use by the assessee for the purposes of business; and (d) the new machinery or plant (not being a ship or an aircraft)— (i) was not used either within or outside India by any other person before its installation by the assessee; (ii) is not installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (iii) is not in the nature of any office appliances or road transport vehicle; or (iv) is not an asset on which the whole of the actual cost is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income under the head “Profits and gains of business or profession” of any tax year. (9) The additional deduction in respect of depreciation referred to in sub-section (8) shall be–– (a) 20% of the actual cost of the new machinery or plant in the tax year when it is acquired and put to use, subject to the provisions of clause (b); or (b) 10% of the actual cost, if the new machinery or plant is acquired and put to use for less than one hundred and eighty days in the relevant tax year, and 10% of the actual cost shall be allowed in the immediately succeeding tax year. (10) The difference between the written down value and the moneys payable including the scrap value, if any, for any tangible asset in respect of which depreciation is claimed and allowed under sub-section (2), shall be allowed as deduction when— (a) such asset is sold, discarded, demolished or destroyed in the tax year not being the tax year in which it is first put into use; (b) the moneys payable including the scrap value, if any, is less than its written down value; and (c) such deficiency is actually written off in the books of account of the assessee. (11) (a) Where the profits and gains chargeable for the tax year before allowing the deduction under sub-sections (1) to (10) is less than such allowable deduction, then–– (i) if such profits and gains is not a loss, the deduction under sub-sections(1) to (10) shall be allowed to the extent of the available profits and gains; (ii) if such profits and gains is a loss, no deduction under sub-sections (1) to (10) shall be allowed; (b) the amount of deduction which has not been allowed under clause (a) shall be added to the allowable deduction under this section, whether available or not, for the succeeding tax year and the total amount shall be deemed to be eligible for deduction in that year, and so on for the succeeding tax years; and (c) the provisions of this sub-section shall be subject to the provisions of sections 112(3) and 113(4). (12) For the purposes of this section,–– (a) “assets” mean— (i) tangible assets, being buildings, machinery, plant or furniture; (ii) intangible assets being–– (A) know-how; or (B) patents; or (C) copyrights; or (D) trademarks; or (E) licences; or (F) franchises; or (G) any other similar business or commercial rights, but not being goodwill of a business or profession; (b) “know-how” means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil-well or other sources of mineral deposits (including searching for discovery or testing of deposits for the winning of access thereto); (c) “sold” includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company or in a scheme of amalgamation of a banking company, as referred to in section 5(c) of the Banking Regulation Act, 1949 with a banking institution as referred to in section 45(15) of the said Act, sanctioned and brought into force by the Central Government under section 45(7) of that Act, of any asset by the banking company to the banking institution; (d) “written down value of the block of assets” shall have the same meaning as in section 41(1)(c). General conditions for allowable deductions. 34. (1) Any expenditure (not being an expenditure of the nature specified in sections 28 to 33, 44 to 49, 51and 52 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession”. (2) For the purposes of sub-section (1), an expenditure laid out or expended wholly and exclusively for business or profession by the assessee shall not include any of the following:–– (a) an expenditure incurred for any purpose which is an offence or is prohibited by law; or (b) an expenditure incurred on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013; or (c) an expenditure incurred on advertisement in any souvenir, brochure, tract, pamphlet or the like, published by a political party. (3) The expenditure mentioned in sub-section (2)(a) shall include expenditure incurred for–– (a) any purpose which is an offence under, or is prohibited by, any law in force in or outside India; or (b) providing a benefit or perquisite in any form to a person, who may or may not be carrying on a business or exercising a profession, when its acceptance by the person is in violation of any law or rule or regulation or guideline governing the conduct of that person; or 10 of 1949. 18 of 2013. (c) compounding an offence under any law in force in or outside India; or (d) settling proceedings initiated in relation to contravention under any law notified by the Central Government in this behalf. Amounts not deductible in certain circumstances. 35. Irrespective of any other provision of Chapter IV-D, the following amounts shall not be allowed as deduction in computing the income chargeable under the head “Profits and gains of business or profession”:— (a) any amount on account of–– (i) tax paid on income; or (ii) tax paid by employer referred to in Schedule III (Table: Sl. No. 10); or (iii) tax paid in any other country for which relief is eligible under section 159 or 160, and shall include any surcharge or cess on such tax, by whatever name called; (b)(i) 30% of any sum payable to a resident, on which tax is deductible at source under Chapter XIX-B and during the tax year, such tax has not been deducted or, after deduction, has not been paid up to the due date specified in section 263(1), so, however, that— (A) where in respect of any such sum, tax is deducted in any subsequent year, or is deducted during the tax year but paid after the due date specified in section 263(1), 30% of such sum shall be allowed as a deduction in computing the income of the tax year, in which such tax has been paid; (B) where the assessee is required to and fails to deduct whole or any part of the tax under Chapter XIX-B on any such sum but he is not deemed to be an assessee in default under section 398(2), then for the purposes of this sub-clause, the assessee shall be deemed to have deducted and paid the tax on such sum on the date on which the return has been filed by the payee referred to in section 398(2); (ii) any interest, royalty, fees for technical services or other sum chargeable under this Act which is payable–– (A) outside India; or (B) in India to a non-resident (which is not a company) or to a foreign company, on which tax is deductible at source under Chapter XIX-B and during the tax year, such tax, has not been deducted or after deduction, has not been paid up to the due date specified in section 263(1), so, however, that –– (I) Where in respect of any such sum, tax is deducted in any subsequent year, or is deducted during the tax year but paid after the due date specified in section 263(1), such sum shall be allowed as a deduction in computing the income of the tax year, in which such tax has been paid; (II) where the assessee is required to and fails to deduct whole or any part of the tax under Chapter XIX-B on any such sum but he is not deemed to be an assessee in default under section 398(2), then for the purposes of this sub-clause the assessee shall be deemed to have deducted and paid the tax on such sum on the date on which the return has been filed by the payee as referred to in section 398(2); (iii) any payment to a provident or other fund established for the benefit of employees of the assessee, unless the assessee has made effective arrangements to secure that tax shall be deducted at source under Chapter XIX-Bfrom any payments made from the fund which are chargeable to tax under the head “Salaries”; (c) any payment chargeable under the head “Salaries”, payable outside India or to a non-resident on which tax is deductible at source under Chapter XIX-B and such tax has not been deducted or, after deduction, has not been paid; (d) any amount–– (i) paid by way of royalty, licence fee, service fee, privilege fee, service charge or any other fee or charge, by whatever name called, which is levied exclusively on; or (ii) which is appropriated, directly or indirectly, from, a State Government undertaking by the State Government; (e) the expenditure incurred by a firm, assessable as such–– (i) in the nature of salary, bonus, commission or remuneration, by whatever name called (herein referred as remuneration) to a partner, who is not a working partner; or (ii) on the remuneration to a working partner, and interest to any partner, if it is–– (A) not authorised by the partnership deed applicable for the period for which such remuneration or interest is paid; or (B) authorised by and is as per the terms of partnership deed but relates to the period prior to the date of such partnership deed, or which was not authorised by the earlier partnership deed; or (iii) on the aggregate remuneration to all working partners as authorised by the partnership deed, exceeding the amount computed as under:–– (A) on the first ₹600000 of the book profit or in case of a loss, ₹300000 or at the rate of 90% of the book profit, whichever is higher; (B) on the balance of the book profit, at the rate of 60%; or (iv) on interest to any partner as authorised by the partnership deed, exceeding 12% simple interest per annum, so, however, that— (A) where an individual is a partner in a firm, on behalf, or for the benefit, of any other person (such partner and the other person being herein referred to as “partner in a representative capacity” and “person so represented”, respectively),— (I) interest paid by the firm to such individual otherwise than as partner in a representative capacity,shall not be taken into account for the purposes of this clause; (II) interest paid by the firm to such individual as partner in a representative capacity and interest paid by the firm to the person so represented shall be taken into account for the purposes of this clause; (B) where an individual is a partner in a firm otherwise than as partner in a representative capacity, interest paid by the firm to such individual shall not be taken into account for the purposes of this clause, if such interest is received by him on behalf, or for the benefit, of any other person; (v) in this clause–– (A) “book profit” means the net profit, as shown in the profit and loss account for the relevant tax year, computed as per Chapter IV-D as increased by the aggregate amount of the remuneration to all the partners of the firm, if such amount has been deducted while computing the net profit; (B) “working partner” means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner; (f) the expenditure incurred by an association of persons or a body of individuals (other than a company, or a co-operative society or society registered under the Societies Registration Act, 1860, or under any law corresponding to that Act in force in any part of India) in the nature of interest, salary, bonus, commission or remuneration, by whatever name called, made to a member of such association or body, provided that— (i) where the interest has been paid by the association or the body to its member and such member has also paid interest to the association or the body, then only such excess interest, if any, paid by the association or body shall not be allowed under this clause; (ii) where an individual is a member of an association or a body on behalf, or for benefit of any other person, such member and any other person shall be referred as “representative member” and “person so represented”, respectively, then, the provisions of this clause–– (A) shall not be applicable in respect of interest paid to or received from, such individual otherwise than in his capacity as a representative member; (B) shall be applicable in respect of interest paid to or received from, an individual in his capacity as a representative member and, the person so represented; (C) shall not be applicable in respect of interest paid to a member, otherwise than as representative member, on behalf or for the benefit of any other person. 36. (1) The provisions of this section shall have effect irrespective of anything to the contrary contained in any other provision of this Act relating to computation of income under the head “Profits and gains of business or profession”. (2) If the assessee incurs any expenditure for which payment has been or is to be made to any “specified person”, which in the opinion of the Assessing Officer is excessive or unreasonable having regard to the–– (a) fair market value of the goods, services or facilities; or (b) legitimate needs of the business or profession of the assessee; or (c) benefit derived by or accruing to the assessee therefrom, so much of the expenditure as considered excessive or unreasonable by him shall not be allowed as a deduction. 21 of 1860. (3) For the purposes of sub-section (2) and this sub-section,–– (a) “specified person” shall mean the following,–– (i) in relation to an assessee mentioned in column B of the Table below, the person referred to in column C thereof:— Table Sl. No. | Assessee | Specified person ---|---|--- A | B | C 1. | Individual. | Any relative of the assessee. 2. | Company. | Any director of the company or his relative. 3. | Firm. | Partner of the firm or his relative. 4. | Association of persons. | Member of the association or his relative. 5. | Hindu undivided family. | Member of the family or his relative; (ii) any person being an individual or company or firm or association of persons or Hindu undivided family having substantial interest in the business or profession of the assessee, or any director, partner, member thereof or any relatives of such individual, director, partner, member or any other company in which the first mentioned company has substantial interest; (iii) a company, firm, association of persons, or Hindu undivided family whose director, partner or member has substantial interest in the business or profession of the assessee, or any director, partner or member thereof and their relatives, as the case may be; (iv) any person carrying on a business or profession, where assessee, being–– (A) an individual or his relative; or (B) a company, its directors or their relatives; or (C) a firm, its partners or their relatives; or (D) an association of persons, its members or their relatives; or (E) a Hindu undivided family, its members or their relatives, has substantial interest in the business or profession of such person; (b) a person is deemed to have “substantial interest in the business or profession” if— (i) in a case where the business or profession is carried on by a company, such person is, at any time during the tax year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than 20% of the voting power; and (ii) in any other case, such person is, at any time during the tax year, beneficially entitled to not less than 20% of the profits of such business or profession. (4) Where in respect of any expenditure incurred by the assessee, any payment or aggregate of payments made in a day to a person exceeds ₹10000 and is not made through specified banking or online mode, then the expenditure by way of such payments shall not be allowed as a deduction. (5) Where any deduction was made in any preceding tax year for a liability incurred for any expenditure and payment in respect of such liability is made during a subsequent tax year and if such payment or aggregate of payments made in a day to a person exceeds ₹10000 and is not made through specified banking or online mode, such payment shall be deemed to be the income under the head “Profits and gains of business or profession” in such subsequent tax year. (6) For the purposes of sub-sections (4) and (5), the figures “₹10000” shall be read as “₹35000” in case the payment is made for plying, hiring or leasing of goods carriages. (7) The provisions of sub-sections (4) and (5) shall not be applicable in cases and circumstances, as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors. (8) Nothing (with reference to mode of payment) contained in any other law in force or in any contract, shall apply in respect of any payment which has been made through specified banking or online mode, in compliance of sub-sections (4) to (7), and no plea shall be allowed to be raised, in any suit or other proceeding on the ground that the payment was not made or tendered in cash or in mode other than through specified banking or online mode. (9) No deduction or allowance shall be allowed in respect of marked to market loss or other expected loss, except as allowable under section 32(1)(h). Certain deductions allowed on actual payment basis only. 37. (1) The sums payable, as specified in sub-section (2), which are otherwise allowable as a deduction under this Act, shall be allowed as a deduction while computing the income chargeable under section 26 only in the tax year in which such sums are actually paid irrespective of–– (a) any provision to the contrary in this Act; or (b) method of accounting regularly followed; or (c) the tax year in which the liability was incurred. (2) The sums payable for the purposes of sub-section (1), shall be–– (a) tax, duty, cess, surcharge or fee, by whatever named called, levied under any law in force; (b) contribution of the employer to a provident fund or superannuation fund or gratuity fund or any fund for the welfare of employees; (c) amount payable by employer in lieu of any leave at the credit of the employee; (d) any sum referred to in section 32(a); (e) interest on loans or advances or borrowings from specified financial entities as per the terms and conditions of the agreement governing such loans or advances or borrowings; (f) amount payable to the Indian Railways for use of railway assets; or (g) amount payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006. (3) In case the amounts specified in sub-section (2), except the sum referred to in clause (g) thereof, are paid after the end of the tax year in which the liability was incurred, but on or before the due date of filing of return of income under section 263(1) for such tax year, the deduction towards such sum shall be allowed in such tax year. (4) If interest on loans or advances or borrowings specified in sub-section (2)(e) is converted into a loan or advance or debenture or any other instrument by which the liability to pay is deferred to a future date, then it shall not be deemed to have been actually paid. (5) If a deduction in respect of any sum payable under sub-section (2) has already been allowed in any tax year when such liability was incurred, it shall not be allowed again in any subsequent tax year when it is paid. (6) The provisions of this section shall not apply to a sum received by the assessee from any employee as contribution towards any of the funds referred to in section 2(49)(o). (7) For the purposes of this section, “specified financial entities” means a public financial institution or State Financial Corporation or State Industrial Investment Corporation or such class of non-banking financial companies as may be notified by the Central Government or a scheduled bank or a co-operative bank (other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank). (8) For the purposes of sub-section (2)(a), “the sum payable” means a sum for which the assessee hasincurred liability in the tax year even though such sum might not have been payable within that year under the relevant law. Certain sums deemed as profits and gains of business or profession. 38. (1) The following sums shall be deemed to be profits and gains of business or profession and shall be chargeable to income-tax, in the manner specified below, subject to the provisions of sub-section (2):–– (a) where an allowance or deduction has been allowed in respect of any loss, expenditure or trading liability incurred by the assessee during any tax year, then,— (i) the value of any benefit accruing to the assessee by way of cessation or remission of such trading liability, including a unilateral act of write-off of such liability in his accounts, in a subsequent tax year in which such benefit accrues; or (ii) any amount obtained by the assessee, whether in cash or otherwise, in respect of such loss or expenditure incurred, in subsequent tax year in which the amount is obtained, whether the business or profession in respect of which the allowance or deduction was made is in existence in such subsequent tax year or not; (b) in a case where any tangible asset [as referred to in section 33(12)(a)(i)], which is owned by assessee, is sold, discarded, demolished or destroyed, and the moneys payable for such asset, together with the scrap value [A] exceeds the written down value of such assets [C], the sum as computed below, in the tax year in which the moneys payable for such asset becomes due–– (i) where the moneys payable for such asset together with the scrap value [A] is less than the actual cost of such asset [B], then— [A] – [C]; or (ii) in any other case,— [B] – [C]; (c) in a case where an asset representing expenditure of a capital nature on scientific research, referred to in section 45(1)(a)(i) is sold, without having been used for other purposes, and the sale proceeds together with the total deductions allowed under that section exceed the amount of capital expenditure, the excess or the amount of deduction so made, whichever is less, in the tax year in which the asset was sold; (d) in a case where a deduction has been allowed for a bad debt (or part of it) under the provisions of section 31(2), and any amount subsequently recovered exceeds the difference between such debt and the amount allowed, then the amount in excess, in the tax year in which recovery is made; (e) in a case where a deduction has been allowed for any special reserve created and maintained under the provisions of section 32(e), any amount subsequently withdrawn from such reserve, in the tax year in which the amount is withdrawn. (2) The provisions of sub-section (1) shall apply subject to fulfilment of the following conditions:— (a) in respect of sub-section (1)(a), only when an allowance or deduction has been made in assessment for any tax year towards the trading liability, loss or expenditure incurred; (b) in respect of sub-section (1)(b), only when the asset owned by the assessee, has been used for the purpose of business or profession, and depreciation has been claimed and allowed thereon under section 33(2); (c) in respect of sub-section (1)(c), only when the asset has not been used for other purposes. (3) Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-section (1)(a), (c), (d) or (e), in respect of that business or profession, any loss, not being a loss sustained in speculation business, which arose in that business or profession during the tax year in which it ceased to exist and which could not be set off against any other income of that tax year shall, so far as may be, be set off against the income chargeable to tax under the said clauses of that sub-section. (4) In respect of sums referred to in sub-section (1)(a), if the benefit referred therein accrues to, or amount referred therein is obtained, by the successor in business, the value of the benefit or the amount shall be chargeable to income-tax as income in the hands of successor in business. (5) The provisions of sub-section (1)(b), (c), (d) and (e) shall apply in a tax year even if the business is no longer in existence. (6) For the purposes of this section,–– (a) “sold” includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company; (b) “successor in business” means–– (i) the amalgamated company, where there has been an amalgamation; (ii) the resulting company, where there has been a demerger; (iii) where the assessee is succeeded by any other person in that business or profession, that other person; (iv) where a firm carrying on a business or profession is succeeded by another firm, that other firm. Special provision for computation of cost of acquisition of certain assets. 39. (1) The actual cost of an asset used for the purposes of the business or profession shall be the actual cost to the assessee, as reduced by the following amounts:— (a) part of cost of asset, if any, met by any other person or authority, directly or indirectly; (b) goods and services tax paid in respect of which credit of input tax has been claimed and allowed under the relevant law; (c) duty of excise or additional duty leviable under section 3 of the Customs Tariff Act, 1975 in respect of which a claim of credit has been made and allowed under the Central Excise Rules, 1944; (d) subsidy, grant or reimbursement, by whatever name called, if any, relatable to the acquisition of the asset, received, directly or indirectly, by the assessee from— (i) the Central Government; (ii) a State Government; (iii) any authority established under any law; or (iv) any other person. (2) The payment or aggregate of payments exceeding ₹10000 in a day for acquisition of an asset or part thereof, made to a person in a mode otherwise than by specified banking or online mode, shall be excluded from the actual cost of that asset. (3) In a case where the subsidy, grant or reimbursement referred to in sub-section (1)(d) is not directly relatable to the asset acquired, the amount of reduction under sub-section (1)(d) shall be determined as under: A × (B/C) where,— A = total amount of subsidy, grant or reimbursement not directly relatable to the asset; B = cost of the asset acquired for which actual cost is to be determined; C = cost of all the assets in respect of or in reference to which the subsidy or grant or reimbursement is so received. (4) In circumstances specified under column B of the Table below, the actual cost of the asset shall be as specified in column C thereof. Table Sl. No. | Specified circumstances | Determination of actual cost ---|---|--- A | B | C 1. | Where capital asset is transferred by an amalgamating company to an amalgamated company being an Indian company in a scheme of amalgamation. | Actual cost to amalgamated company shall be the same as it would have been if the amalgamating company had continued to hold such capital asset for the purpose of its own business. 2. | Where capital asset is transferred by a demerged company to a resulting company being an Indian company in a demerger. | Actual cost to resulting company shall be the same as it would have been, if the demerged company had continued to hold such asset for the purpose of its own business, which shall not exceed the written down value of such capital asset in the hands of demerged company. 51 of 1975. A B C 3. | Where inventory is converted into or treated as a capital asset. | Fair Market Value of such inventory as on date of conversion, as determined in the manner as may be prescribed. 4. | Where asset is acquired by the assessee by way of gift or inheritance. | Actual cost to the previous owner as reduced by— (a) depreciation actually allowed in respect of tax year commencing on 1st April, 1986 or any earlier tax year; and (b) depreciation allowable for tax year commencing on or after 1st April,1987 under this Act or under the Income-tax Act, 1961(43 of 1961), as if such asset was the only asset in the relevant block of asset. 5. | Where a building, being the property of the assessee, is put to use for the purpose of business or profession during the tax year. | Actual cost of the building as reduced by the depreciation— (a) that would have been allowable had the building been used for the purpose of business or profession from the date of acquisition; and (b) calculated at the rate in force on the date on which such asset was put to use for the purpose of business or profession. 6. | Where capital asset is transferred by— (a) a holding company to its subsidiary company; or (b) a subsidiary company to its holding company, and the conditions of section 70(1)(c) and (d), as the case may be, are satisfied. | Actual cost to the transferee company shall be the same as it would have been, if the transferor company had continued to hold such asset for the purpose of its own business. 7. | Where an asset, which previously belonged to the assessee and had been used by him for the purpose of his business or profession, is reacquired by the assessee. | (a) Actual cost of the asset in the hands of assessee, when it was first acquired, as reduced by— (i) depreciation actually allowed in respect of tax year commencing on 1st April,1986 or any earlier tax year; and (ii) depreciation allowable for tax year commencing on or after 1st April, 1987 under this Act or under the Income-tax Act, 1961(43 of 1961), as if such asset was the only asset in the relevant block of asset; or (b) actual price for which such asset is reacquired by the assesse, whichever is lower. A B C 8. | Where an asset is acquired by the assessee from previous owner and subsequently asset is given back to the previous owner by way of lease, hire or otherwise, and— (a) the asset was being used for the purpose of business or profession by the previous owner; and (b) depreciation has been claimed by the previous owner. | Actual cost of asset to the assessee shall be the written down value of the asset in the hands of the previous owner at the time of transfer by the previous owner. 9. | Where an asset is used in business after it ceases to be used for scientific research related to that business and a deduction is allowable under section 33(3). | Actual cost of asset as reduced by deduction allowed for the capital asset under section 45(1)(a)(i) or under section 35(1)(iv) of the Income-tax Act, 1961(43 of 1961). 10. | Where the assessee had acquired an asset outside India, as a non resident, and the asset is brought by him to India and put to use in his business or profession in India. | Actual cost of the asset as reduced by the depreciation–– (a) that would have been allowable had the asset been used for the purpose of business or profession in India since the date of its acquisition; and (b) calculated at the rate in force. 11. | Where capital asset is acquired under the scheme of corporatisation of a recognised stock exchange approved by the Securities and Exchange Board of India. | Actual cost of the asset, as if there was no corporatisation. 12. | (a) Where deduction under section 46 was allowed or allowable in respect of the capital asset— (i) to the assessee; or (ii) to any person and the assessee acquires or receives such asset through special modes of acquisition from such person. (b) Where deduction allowed under section 46 in respect of a capital asset becomes deemed income as per section 46(9)(b). | (a) Actual cost shall be deemed to be nil. (b) Actual cost of the asset as reduced by the depreciation,— (i) that would have been allowable had the asset been used for the purpose of business since date of acquisition; and (ii) calculated at the rate in force. 13. | Where any amount is paid or payable as interest in connection with the acquisition of an asset. | Actual cost shall not include so much of such amount as is relatable to any period after such asset is first put to use. (5) Irrespective of anything contained in sub-section (4), other than serial number 8 of the Table in the said sub-section, in a case where the asset is acquired by the assessee, its actual cost shall be such amount as may be determined by the Assessing Officer having regard to all the circumstances of the case, where— (a) the asset was used by any other person for the purposes of his business, before such acquisition; and (b) the Assessing Officer is satisfied that the main purpose of the transfer of the asset, directly or indirectly, was to reduce tax liability (by claiming depreciation on enhanced actual cost). (6) The determination of actual cost under sub-section (5) shall be made with the prior approval of the Joint Commissioner. (7) For the purposes of this section, “special modes of acquisition” means acquisition— (a) by way of a gift or will or an irrevocable trust; or (b) upon distribution on the liquidation of a company; or (c) by such mode of transfer as is referred to in section 70(1)(a), (c), (d), (e), (j), (zd), (ze) and (zf). Special provision for computation of cost of acquisition of certain assets. 40. (1) For the purposes of computation of income under the head “Profits and gains of business or profession”, cost of acquisition of an asset which becomes property of–– (a) an amalgamated company under a scheme of amalgamation; or (b) an assessee, under a gift, or will, or an irrevocable trust, or on total or partial partition of a Hindu undivided family, when sold as stock-in-trade shall be the sum of— (i) cost of acquisition of the said asset in the hands of the amalgamating company in case of clause (a), or the transferor or donor in case of clause (b); (ii) any cost of improvement made; (iii) any expenditure incurred by the amalgamating company or transferor or donor, as the case may be, wholly and exclusively in connection with such transfer. (2) This section shall not apply to an asset referred to in section 67(6). Written down value of depreciable asset. 41. (1) For the purposes of computation of income under the head “Profits and gains of business or profession”, written down value means— (a) in case the asset is acquired in the tax year, the actual cost to the assessee; (b) in case the asset is acquired before the tax year, actual cost to the assessee less depreciation actually allowed under this Act or under the Income-tax Act, 1961; (c) in case of block of assets, the written down value computed in the following manner: [(A-D) + B-C]-E, where A = the written down value of the block of assets in the immediately preceding tax year; B = actual cost of any asset falling within that block, acquired during the tax year; C = moneys payable together with scrap value, if any, in respect of any asset falling within the block, which is sold, transferred, demolished, destroyed or discarded during the tax year, where “C” shall not exceed (A-D)+B; 43 of 1961. D = depreciation actually allowed in respect of block of assets in relation to the said immediately preceding tax year; E = in the case of a slump sale, the actual cost of the asset falling within that block as reduced by— (i) depreciation actually allowed in respect of tax year commencing on 1st April, 1986 or any earlier tax year; and (ii) depreciation allowable for tax year commencing on or after 1st April, 1987 under this Act or under the Income-tax Act, 1961, as if such asset was the only asset in the relevant block of asset. (2) Where any block of asset is transferred by— (a) a holding company to its subsidiary company and the conditions of section 70(1)(c) are satisfied; (b) a subsidiary company to its holding company and the conditions of section 70(1)(d) are satisfied; or (c) amalgamating company to the amalgamated company being an Indian company, then the actual cost of the block of assets, irrespective of anything contained in section 39, in the hands of transferee company or amalgamated company, as the case may be, shall be the same as written down value of the block of assets as in the case of the transferor company or the amalgamating company in the immediately preceding tax year as reduced by depreciation actually allowed in respect of that block of asset in relation to that tax year. (3) Where any asset, forming part of a block of assets is transferred by a demerged company to a resulting company, the written down value of block of assets of demerged company for the immediately preceding tax year, shall be reduced by the written down value of the assets transferred to the resulting company pursuant to such demerger. (4) Where any asset, forming part of a block of assets is transferred by a demerged company to a resulting company then the actual cost of the block of assets, irrespective of anything contained in section 39, for resulting company shall be the written down value of the assets transferred from the demerged company immediately before such demerger. (5) Where any block of assets is transferred by a private company or unlisted public company to a limited liability partnership and the conditions in section 70(1)(ze) are satisfied, then the actual cost of the block of assets, irrespective of anything contained in section 39, in the hands of limited liability partnership shall be written down value in the hands of said company as on the date of conversion of the company into limited liability partnership. (6) Where any asset forming part of the block of assets is transferred to a company under the scheme of corporatisation of a recognised stock exchange in India approved by the Securities and Exchange Board of India, the written down value of the block of assets in the hands of such company, shall be the written down value of the assets transferred immediately before such transfer. (7) In a case of succession in business or profession under section 313, where an assessment is made in the hands of successor under section 313(2), the written down value of any asset or block of assets shall be the amount which would have been taken as its written down value, if the assessment had been made directly on the person succeeded to. (8) For the purposes of this section, any allowance in respect of any depreciation carried forward under section 33(11) shall be deemed to be the depreciation actually allowed. (9) Where an assessee was not required to compute his total income for the purposes of this Act for any tax year or tax years preceding the tax year under consideration,— (a) the actual cost of an asset shall be adjusted by the amount attributable to the revaluation of such asset, if any, in the books of account; (b) the total amount of depreciation on such asset provided in the books of account of the assessee in respect of such tax year or tax years preceding the tax year under consideration shall be deemed to be the depreciation actually allowed under this Act for the purposes of this clause; and (c) the depreciation actually allowed under clause (b) shall be adjusted by the amount of depreciation attributable to such revaluation of the asset. (10) For the purposes of this section, where the income of an assessee is derived, in part from agriculture and in part from business chargeable to income-tax under the head “Profits and gains of business or profession”, for computing the written down value of assets acquired before the tax year, the total amount of depreciation shall be computed as if the entire income is derived from the business of the assessee under the head “Profits and gains of business or profession” and the depreciation so computed shall be deemed to be the depreciation actually allowed under this Act or under the Income-tax Act, 1961. (11) For the purposes of this section, the term “sold” shall have the meaning assigned to it in section 38(6)(a). Capitalising impact of foreign exchange fluctuation. 42. (1) Irrespective of anything contained in any other provision of this Act, where at the time of making payment during the tax year, there is a variation in liability of an assessee as expressed in Indian currency, due to change in rate of exchange, in relation to an asset acquired for the purpose of business or profession from a country outside India, it shall be dealt with in the manner specified in sub-sections (2) and (3). (2) For this section, the liability shall exclude any part met directly or indirectly by any other person or authority and the “variation in liability” shall be computed as— A = B-C where,— A = variation in liability; B = payment expressed in Indian currency at the time when it is made— (a) towards the whole or part of the cost of asset; or (b) towards repayment of the whole or part of the moneys borrowed, directly or indirectly, along with interest in foreign currency, specifically for acquiring such asset; C = liability, corresponding to the amount referred in B, in Indian currency at the time of acquisition of such asset. (3) The variation in liability shall be added or reduced from the— (a) actual cost of the asset as referred in section 39; or (b) expenditure of capital nature referred to in section 32(i) or 45(1)(a)(i); or (c) cost of acquisition of a capital asset (not being a capital asset referred to in section 74) for the purpose of section 72, 43 of 1961. and the amount arrived at after such addition or deduction shall be taken to be the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset. (4) Where the assessee has entered into a contract with an authorised dealer as defined in section 2 of the Foreign Exchange Management Act, 1999, for providing him with a specified sum in a foreign currency on or after a stipulated future date at the rate of exchange specified in the contract to enable him to meet the whole or any part of the said liability, the amount, if any, to be added to, or deducted from, the actual cost of the asset or the amount of expenditure of a capital nature or, as the case may be, the cost of acquisition of the capital asset under this section shall, in respect of so much of the sum specified in the contract as is available for discharging the said liability, be computed with reference to the rate of exchange specified therein. Taxation of foreign exchange fluctuation. 43. (1) Subject to the provisions of section 42, any gain or loss arising on account of change in foreign exchange rates on foreign currency transactions shall be treated as income or loss, as the case may be, and shall be computed as per the income computation and disclosure standards notified under section 276(2). (2) The provisions of sub-section (1) shall be applicable to all foreign currency transactions, including those relating to— (a) monetary items and non-monetary items; (b) translation of financial statements of foreign operations; (c) forward exchange contracts; and (d) foreign currency translation reserves. Amortisation of certain preliminary expenses. 44. (1) If an assessee, being an Indian company or a person (other than a company), who is resident in India, incurs any expenditure specified in sub-section (2)— (a) before the commencement of its business; or (b) after the commencement of its business, in connection with the extension of its undertaking or in connection with its setting up a new unit, the assessee shall be allowed a deduction of an amount equal to one-fifth of such expenditure for each of the five successive tax years beginning with— (i) the tax year in which the business commences, for clause (a); or (ii) the tax year in which the extension of the undertaking is completed or the new unit commences production or operation, for clause (b). (2) The expenditure referred to in sub-section (1) shall be— (a) the expenditure in connection with— (i) preparation of feasibility report; (ii) preparation of project report; (iii) conducting market survey or any other survey necessary for the business; (iv) engineering services relating to the business; (b) legal charges for drafting any agreement between the assessee and any other person for any purpose relating to the setting up or conduct of the business; (c) in addition to expenditure in clauses (a) and (b), if the assessee is a company,— (i) legal charges for drafting and printing of the Memorandum and Articles of Association of the company; 42 of 1999. (ii) fees for registering the company under the provisions of the Companies Act, 2013; (iii) expenditure in connection with the issue, for public subscription, of shares in or debentures of the company, being underwriting commission, brokerage and charges for drafting, typing, printing and advertisement of the prospectus; and (d) such other items of expenditure (not being expenditure eligible for any allowance or deduction under any other provision of this Act), as may be prescribed. (3) In relation to expenditure specified in sub-section (2)(a), the assessee shall furnish a statement containing the particulars of the expenditure in such form and manner, as may be prescribed. (4) The allowable deduction under sub-section (1) in respect of aggregate of expenditure referred to in sub-section (2) shall be restricted to 5%— (a) of the cost of the project; or (b) of the capital employed in the business of the company, where the assessee is an Indian company, at its option. (5) For the purposes of this section,— (a) “cost of the project” means the actual cost of the fixed assets, being land, buildings, leaseholds, plant, machinery, furniture, fittings and railway sidings (including expenditure on development of land and buildings) and— (i) for cases under sub-section (1)(a), the actual cost as shown in the books of the assessee as on the last day of the tax year in which the business commences; (ii) for cases under sub-section (1)(b), the actual cost as shown in the books of the assessee as on the last day of the tax year in which either the extension of the undertaking is completed, or the new unit commences production or operations, as the case may be, in so far as such fixed assets have been acquired or developed in connection with the extension of the undertaking or setting up of new unit; (b) “capital employed in the business of the company” means— (i) in cases under sub-section (1)(a), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the tax year in which the business of the company commences; (ii) in a case under sub-section (1)(b), the aggregate of the issued share capital, debentures and long-term borrowings as on the last day of the tax year in which the extension of the undertaking is completed or, as the case may be, the new unit commences production or operation, in so far as such capital, debentures and long-term borrowings have been issued or obtained in connection with the extension of the undertaking or the setting up of the new unit of the company; (c) “long-term borrowings” means— (i) any moneys borrowed by the company from Government or Industrial Finance Corporation of India Limited or any other financial institution which is eligible for deduction under section 32(e) or any banking institution (not being a financial institution referred to above); or (ii) any moneys borrowed or debt incurred by it in a foreign country in respect of the purchase outside India of capital plant and machinery, where the tenure of moneys borrowed or debt is not less than seven years. 18 of 2013. (II) an undertaking referred to in section 80-IA(4)(ii) or (iii) or (iv) or (vi) of the Income-tax Act, 1961; and (III) an undertaking referred to in section 80-IB(10) of the Income-tax Act, 1961; (f) any expenditure, not being capital expenditure, incurred by a corporation or a body corporate, by whatever name called, if,— (i) it is constituted or established by a Central Act or State Act or Provincial Act; (ii) it is notified by the Central Government for the purposes of this clause having regard to the objects and purposes of the Act referred to in sub-clause (i); and (iii) the expenditure is incurred for the objects and purposes authorised by the Act under which it is constituted or established; (g) the expenditure incurred by a co-operative society engaged in the business of manufacture of sugar, on purchase of sugarcane at a price equal to or less than the price fixed or approved by the Government; (h) marked to market loss or other expected loss as computed as per the income computation and disclosure standards notified under section 276(2); (i) any expenditure bona fide incurred by a company for the purpose of promoting family planning amongst its employees, subject to the following conditions:–– (A) if such expenditure or any part of it is of capital nature, one-fifth of it shall be deducted for the tax year in which it was incurred and the balance shall be deducted in equal instalments for each of the four immediately succeeding tax years; (B) the provisions of sections 33(11) and 112(3) shall apply to deduction under this clause as they apply in relation to deductions allowable in respect of depreciation; (C) the provisions of sections 38(1)(c), 39(4) (Table: Sl. No. 9), 45(6) and (10), shall apply to an asset representing capital expenditure for promoting family planning, to the extent they apply to an asset representing capital expenditure on scientific research; (j) the amount being difference between the actual cost of animals used for the purposes of the business or profession otherwise than as stock-in-trade and the amount realised from the carcasses or animals, where such animals have died or become permanently useless; and (k) the amount paid as securities transaction tax or commodities transaction tax, if–– (i) the taxable securities transactions or taxable commodities transactions are entered into the course of the business during the tax year; and (ii) the income arising from such taxable securities transactions or taxable commodities transactions is included in the income computed under the head “Profits and gains of business or profession”. Deduction for depreciation. 33. (1) A deduction in respect of depreciation of— (a) buildings, machinery, plant or furniture, being tangible assets; 43 of 1961. 43 of 1961. (b) know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st April, 1998, not being goodwill of a business or profession, owned wholly or partly by the assessee and used wholly and exclusively for the purposes of the business or profession, shall be allowed, as per the provisions of this section. (2) In case of assets referred to in sub-section (1) of an undertaking engaged in generation or generation and distribution of power, the deduction in respect of depreciation shall be such percentage of its actual cost to the assessee, as may be prescribed. (3) (a) In case of any block of assets, deduction in respect of depreciation shall be such percentage of its written down value, as may be prescribed; (b) when any building, machinery, plant or furniture is partly, or not wholly and exclusively, used for the purposes of the business or profession, the deduction under clause (a) shall be restricted to the fair proportionate part thereof as determined by the Assessing Officer, having regard to the usage of such building, machinery, plant or furniture for the purposes of the business or profession; (c) when deduction of actual cost in respect of any machinery or plant has been allowed under section 54, no deduction under this sub-section shall be allowed. (4) The deduction under this section shall be restricted to 50% of the prescribed rate, if such asset, being asset referred to in sub-sections (2) and (3) is–– (a) acquired by the assessee during the tax year; and (b) put to use for the purposes of business or profession for less than one hundred and eighty days in that tax year. (5) The aggregate deduction in respect of depreciation allowable to the predecessor and successor in cases of